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An assessment of the possible implications of the EAC-EU EPA on Kenyan agricultural sector and its compatibility with the WTO rules

Kenya Human Rights Commission | 20 January 2016

An assessment of the possible implications of the EAC-EU EPA on Kenyan agricultural sector and its compatibility with the WTO rules

This report examines the implications of the EAC-EU EPA on Kenya’s agricultural sector, specifically the likely effects on smallholder farmers and agricultural outputs. It also reviews the compatibility between the EPA and the WTO agreement as well as the ratification and domestication of the agreement in Kenya.

The study establishes that the potential threat of EPAs on local agricultural production lies in the possible surge into the local market by imports from the EU following the liberalization. Fortunately, most of the agricultural products are listed in the EAC sensitive product list, and therefore protected. In addition, the largest source of agricultural imports into Kenya is the ACP group of countries and not the EU per se.

However, the policies of the EU are likely to indirectly affect domestic agricultural production through the impacts in the international market prices. At the same time, market access offers granted to Kenya and EAC by the EU through tariff reduction are likely to have marginal effects as long as non-tariff barriers, including high agricultural subsidies and high sanitary and phytosanitary standards are imposed by EU markets.

The EPA with regard to farmers is likely to affect initiatives towards more value addition and processing of raw agricultural products, due to lose of policy space to apply duties on EU imports into the country, and impose export taxes on Kenya‟s raw materials destined for European markets. In addition, the high standards and SPS requirements by Europe may diminish the smallholder productions and results into loss of earnings from farm produce and employment opportunities. Subsidized EU exports could also lower world market prices thus reduce farmers‟ export income, while lowcost agricultural imports crowd farmers out of the domestic markets.

The assessment of the compatibility of the FEPA with the WTO rules was done within the scope of Article XXIV of the General Agreement on Tariffs and Trade (GATT, 1947). This agreement and the said article sets the disciplines for the creation of free trade areas like the one envisaged in the FEPA. The assessment took into account thevarious provisions of paragraphs two to eight of the said article. Upon examining the FEPA as currently constituted against the WTO provisions, FEPA seems to meet most of the basic requirements of article XXIV. Taking into account the truism that there is little consensus on the interpretation of most of the requirements of article XXIV, it is unlikely that the FEPA could be challenged by the rest of the WTO membership. The overall conclusion is therefore that the FEPA as currently initialed is compatible with the WTO Rules on the establishment of free trade areas.

The analysis suggests potential impact of the FEPA on development and poverty reduction, that there would be significant impacts of full reciprocity on imports in Kenya under the EPAs. Substantial changes in composition with switching of sources away from the other regional and world suppliers to the EU would, especially, take place in the industrial goods sector as opposed to agricultural and intermediate products sectors. The full implementation of EPA, may shift consumption away from local products, to EU goods. This may in turn lead to a decline in production and employment in large-scale industries.

The study determines net positive revenue impact of EPAs on Kenya; this dispels the initial fears on the fiscal costs of EPAs. The minimal disruption in fiscal revenue is attributed mainly to the existence of the exclusion list where tariff revenues continue to be collected and the need to safeguard agriculture and industrial sectors. Besides, tariffs continue to be collected from imports from other trading partners other than the EU and the EAC. Kenya has also managed to broaden the revenue sources away from import and export tariff revenues.

Policy Recommendations

In light of the foregoing conclusion, the following specific recommendations are suggested as follows:

1. There should be continued support to all smallholder farmers in the country in order to cushion them from any possible threats of liberalization in the context of EPAs. The support should include but not limited to supply of farm inputs, increased extension services both from public and private providers, marketing services, storage facilities and trainings etc.

2. Stakeholders should take cognizance of the concluded agreement and the ratification procedures that could be used upon it. The important thing would be to ensure that ratification is done through Parliament which can place necessary caveats on some aspects of the agreements as necessary. Alternatively, Parliament has the power to demand that certain aspects of the agreement be amended to best reflect the needs of the country in the Agreement. This will also provide for wider consultations and participation in the ratification process.

3. All stakeholders should, in the event of ratification, establish a mechanism to monitor the implementation of the agreement. In so doing, there should be a deliberate mechanism to track the challenges in the implementation of the agreement as well as the negative impacts. Such information could provide an important basis for adjustments to be made during the review process which comes two years after the agreement is signed.

4. The government should actively monitor the trade flows between the EU and Kenya and the rest of the EAC Partner States. This should be done on a continuous basis to determine whether it would be necessary to institute trade defense mechanisms in the vent of a surge of imports.

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 source: KHRC