East Africa strikes free trade deal with the EU
Business Daily | 8 March 2010
East Africa strikes free trade deal with the EU
By George Omondi
The East African Community moved closer to striking a deal on Economic Partnership Agreement negotiations with the European Union after Brussels softened its stand on development support – a key demand of African states that has stalled the talks for nearly three years.
The deal was struck at a recent meeting of EAC and EU officials in Brussels where the Europeans reportedly agreed to finance priority development programmes in East Africa, removing a major obstacle to conclusion of the deal.
An EAC official, who attended the meeting, told Business Daily that the European Commission (EC) had asked East African states to prepare a list of priority projects and programmes that require EU funding for possible approval in the next two weeks.
Development needs
That move is expected to pave the way for the signing of the Framework for Economic Partnership Agreements (FEPA) by the end of this month.
“Both parties also agreed to work towards defining and addressing the development needs associated with the EPAs to promote sustained growth, strengthen regional integration, foster structural transformation and competitiveness that will increase production in the countries concerned,” said our source.
EAC wants an enlarged development budget from the Europeans in exchange for trade liberalization, but the EC has maintained that it is already spending a lot of money in the region, and cannot take an additional burden.
Last month, however, the parties reportedly agreed on an EAC-EPA-Development Matrix, but the EAC requested for more time to refine it with a list of priority projects and programmes before March 22, 2010.
“Once the EC side receives the refined list, we can be sure of signing FEPA by the end of this month and a comprehensive EPA by the end of the year,” said our source.
On Wednesday, the East African Business Council (EABC), an umbrella body of business associations, celebrated the breakthrough with a congratulatory message to EC and EAC for sorting out the contentious issues.
“The prolonged impasse on contentious issues in FEPA had created uncertainty in the business community, especially in Kenya, over access of their goods to the European Union,” said Ms Agatha Nderitu, the EABC’s acting executive director.
Highly competitive
“Agreeing on how to proceed is a positive development that should enable us to make recommendations with a clearer road map,” she said.
EC and the EAC initialed FEPA in 2007 to replaced the earlier non-reciprocal trade agreements that are now banned by the World Trade Organisation family, setting an initial deadline of sealing a deal for full EPA by 2008.
However, disagreements over key issues such as economic development, export taxes, and Most Favoured Nation (MFN) treatment clauses have prevented the negotiators from sealing a deal.
The agreement, which covers 100 per cent of EU tariff lines and 74 per cent of EAC tariff lines, 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).
EAC negotiators maintain that opening up to highly competitive goods from EU is likely to kill local infant industries, consigning a large number of their citizens to joblessness and poverty.
In Kenya, the government commissioned the Kenya Institute for Public Policy and Analysis (Kippra) to study the likely impact of trade liberalisation with the EU.
The 2005 study concluded that the government would lose Sh6 billion in tax revenue in case of 100 per cent trade liberalisation and Sh4.8 billion in case of 80 per cent trade liberalisation annually.
“The expected revenue loss of Sh4.98 billion will, however, be counteracted on the other hand by trade creation and consumer welfare estimated at about Sh33 billion and Sh2.4 billion respectively,” said a follow-up study released by the Trade ministry a year later.
Anxiety has been growing among the firms that export products to the EU that faced the prospect of reverting to the less favourable generalised trade pacts that EU countries extend to former colonies.
Trade minister Amos Kimunya reckons that trade with EU has contributed immensely to Kenya’s development, creating more than 1.5 million jobs and Sh70 billion worth of investments in the horticulture and fisheries sectors.
Unlike EPAs, FEPA excludes trade in agricultural products, wines and spirits, chemicals, plastics, wood based paper, textiles and clothing, footwear, glassware, which the EAC has opted to shield from cheap imports.
According to EABC, the region’s private sector still has concerns over EPAs’ non tariff barriers like Rules of Origin, Trade in Services, Technical Barriers to Trade (TBT) and Sanitary and Phyto-sanitary (SPS) measures.
Other concerns revolve around the treatment of agriculture, economic and development co-operation and trade related issues comprising Competition, Intellectual Property Rights, Investment and Private Sector Development, and Transparency in Public Procurement.
“EPA should guarantee EAC Products more access to EU Markets beyond duty free and quota market access by having simple and flexible Rules of Origin; more business friendly TBT & SPS and EU cutting substantially its domestic support and doing away with export subsidy programmes in the agriculture sector.” said Ms Nderitu.
