5th Mar 2024

Whiskey dispute hits new EU-Kenya trade pact

  • The new partnership will give Kenya duty-free and quota-free access to all of its exports to the EU market (Photo: István Fazekas, HVG)
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Kenya faces s dispute with the EU on whiskey imports just weeks after its tortuously agreed trade pact with Brussels came operationally into effect.

Even though the trade pact has not officially been ratified by the EU, Kenya is already breaking its terms by applying higher tariffs on certain products in order not to breach the East African Community's (EAC) Common External Tariff.

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A plenary vote is expected to take place at the end of February, after which the EU Council still needs to formally approve it for it to officially come into effect.

In July 2022, the eight-member EAC increased the import duty on spirits and wines to 35 percent, in a bid to encourage local production. However, Kenya's trade deals with the EU and the UK, which are identical in substance, establish import duty at 25 percent.

Meanwhile, duties on imported cars from the EU have been kept at 25 percent.

The EAC starts with a zero rate for raw materials, 10 percent for intermediate goods not available in the region, 25 percent for intermediate goods available in the region, and 35 percent for imported finished products available there.

The new Economic Partnership Agreement (EPA) will give Kenya duty-free and quota-free access to all of its exports to the EU market. However, the East African country is also required to gradually reduce import taxes on products from Europe.

The deal allows Kenya to protect some of its agricultural products, either by excluding them from tariff cuts or by keeping the option of triggering safeguards in case of sharp and sudden increase of imports from the EU.

The bulk of the EU-Kenya deal was originally negotiated between Brussels and the now eight-member EAC a decade ago.

However, the proposed EU-EAC was abandoned in 2014 after Tanzania and Uganda argued that it would not benefit intra-EAC trade and make it harder for the region to develop industrial capacity to produce finished goods.

At an EAC summit in February 2021, leaders agreed that those who wanted to ratify the deal with the EU could do so by using a so-called 'variable geometry' clause.

The Kenya-EU deal will be open for other EAC countries to join, though there is little sign that other leading countries in the EAC, including Rwanda, Uganda, and Tanzania, who say that the terms of the EPA are too advantageous for Brussels, will sign it.

Since winning the presidency in August 2022, Kenyan president William Ruto has sought to cultivate closer relations with Brussels, particularly on climate change and energy policy. Around 20 percent of Kenya's exports currently go to the EU.

There are longstanding concerns among EAC officials that the EU's access to Kenya's market could undermine the common external tariff.

In a bid to resolve the dispute, Kenya's treasury has said that it will lobby for the EAC to reform its tariffs to be compatible with its trade arrangements with the EU.

That would make all primary raw materials and capital goods duty free and mean a 15 to 20 percent rate for all other imported goods.

There is a similarly complicated picture across most of sub-Saharan Africa.

Although negotiations on regional EPAs between the EU and 44 African states were concluded almost a decade ago, the EPA with the Southern African Development Community is the only regional agreement that has been ratified and implemented.

In West Africa, Nigeria is still the main holdout from the EPA with the Economic Community of West African States.

In all cases, the requirement in the EPAs for African countries to gradually open up their own markets to European firms and products has been the main barrier to agreement.

This article has been updated to clarify that the deal is operationally in effect even though it has not officially been ratified

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