Inter Press Service (Johannesburg) | 19 September 2007
Flower Industry May Wilt If EPA Deadline is Missed
By Rosalia Omungo
Failure to conclude an economic partnership agreement (EPA) with the European Union (EU) by the end-of-year deadline will have serious implications for Kenyan exporters, including those in the booming horticultural industry.
Government officials, Kenyan exporters and non-governmental organizations are all concerned about the pace at which the EPA talks are advancing.
Peter Mandelson, EU trade commissioner, warned last week that the preferential tariffs of the Cotonou agreement will fall away and the generalized system of preferences (GSP) will come into effect if the deadline of 31 December 2007 is missed.
This is true for all the African, Caribbean and Pacific (ACP) countries with which the EU is currently negotiating EPAs.
Under the Cotonou agreement, horticulture, fruit, vegetables and fish enjoys zero-rated tariffs. Under the GSP, these products can face tariff increases of between two and 24 percent, according to Kenyan analyst Gichinga Ndirangu.
Kenya is negotiating with the EU as part of the East African Community (EAC) bloc. The other member states—Uganda, Rwanda and Burundi—will not be affected in the same way. They are least developed countries and therefore qualify for preferential treatment of their exports under the EU’s Everything-but-Arms (EBA) trade initiative.
Kenya does not fall in the EBA category and stands to lose billions of Kenyan shillings if there is no agreement by the deadline. Until the EPA is signed, there remains uncertainty within the horticultural sector about the treatment of its products after January 1, 2008.
David Nalo, permanent secretary in the ministry of trade and industry, confirmed at a meeting last week that failure to finalise the EPA by the end of this year would cause an immediate loss of market opportunities in the EU for commodities which gained market access on account of preferential tariffs. Such commodities include horticultural produce.
If the current trading arrangement with the EU came to an end without an alternative, the result would be massive unemployment and losses in government revenue and foreign exchange, Nalo warned.
"If no accord is put in place, fresh produce could attract an eight percent import duty in the EU market," according to Dr Stephen Mbithi, chief executive officer of the Fresh Produce Exporters Association of Kenya.
"This will make Kenyan products more expensive, which will be to the advantage of our competitors like Morocco," he said.
"It is important that an interim arrangement be worked out to ensure there is no disruption of trade next year, until such time as a substantive EPA is signed," insisted Hasit Shah, acting chairperson of the Horticultural Council of Africa (HCA).
Similarly, Walter Kamau, senior executive officer at the Kenya Association of Manufacturers, said the EU should be pressurized to continue with current tariff preferences come January 2008.
"Kenya has 4.9 billion Kenyan shillings (about 74,5 million dollars) per annum in horticultural earnings at stake. It also links with other sectors, such as transport, irrigation, machinery and equipment, chemical and carton manufacturers."
In contrast with Mandelson’s warning, secretary general of the Common Market of Eastern and Southern Africa, Erastus Mwencha, told the press at the end of August that transitional measures would be worked out if the deadline was missed.
"We assure the business community that that we are aware of the challenge, but we will ensure trade with the EU is not disrupted," said Mwencha.
According to Mwencha, Kenya’s trade and industry minister Dr Mukhisa Kituyi had written to the EU on transitional measures to avoid disruption before the EPAs come into force.
The EPA negotiations have been slow because of controversies such as the regional configurations of African states and the trade reciprocity that these states will eventually be required to give to EU products and services.
Under World Trade Organisation (WTO) rules, the EU cannot provide preferential trade access to some developing states while excluding others. Consequently, the WTO granted a special exemption that allows ACP exporters preferential access to EU markets until December 2007. Thereafter, a new regime should kick in.