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Kenya blushes as EAC-EU trade agreements clash

Kenya blushes as EAC-EU trade agreements clash

Nation | 24th January 2024

By Dominic Omondi

Kenya’s recently completed trade deals have run into stormy waters after Nairobi applied higher import duties on whiskies and wines from the United Kingdom and the European Union (EA) respectively, two jurisdictions with which it signed Economic Partnership Agreements (EPA).

While Kenya, in line with the East Africa Community (EAC) Customs Union, is applying a higher tariff of 35 per cent on imported wines and whiskies to encourage local production, the two EPAs put the import duty at 25 per cent.

The deal with the EU is awaiting ratification in Brussels while the agreement with Britain is operational. Countries in the EU and UK which produce Scotch Whiskey, Tequila, Champagne and Bourbon are protected by a clause in the World Trade Organisation (WTO) Agreement that forbids their manufacture in other countries.

This has left Kenya in an awkward position as it is expected to implement a higher tariff of 35 per cent in line with Common External Tariff (CET) under the EAC Customs Union.

“Under the EAC protocol, Kenya should adopt the EAC Common External Tariff (CET),” said Robert Waruiru, a tax expert.

“The EPA gives reciprocal lower rates for imports from the EU…perhaps the push (by Kenya) for a revision of the CET bands,” added Waruiru.

In July 2022, the EAC, an eight-member free trade area to which Kenya belongs, increased the import duty on spirits and wines to 35 per cent, in what was aimed at encouraging local production. However, this tariff is at variance with the 25 per cent tariff contained in the two EPAs.

Kenya, which entered into these agreements without the other seven EAC member States, has indicated that it will be lobbying the EAC Council of ministers to lower the upper band of the CET in what is aimed at re-aligning with the tariffs in the two EPAs. It was not immediately clear if the push for the reduction was to re-align with the two EPAs.

When asked to explain how Kenya will reconcile the two divergent rates, the National Treasury Cabinet Secretary Professor Njuguna Ndung’u said he would consult the Kenya Revenue Authority.

In the EPA with the UK—made up of England, Scotland, Wales and Northern Ireland—import duty on cars and whiskies from the European nation was retained at 25 per cent. While import duties on imported cars from the UK have been retained at 25 per cent, tariffs on whiskies and other spirits such as Gin, also produced in the UK, are slapped with a 35 per cent duty.

In 2021, Kenya imported hard liquor, mostly whiskies, from the UK, made up of England, Scotland, Wales and Northern Ireland, valued at $23.7 million (Sh3.85 billion), according to the Observatory of Economic Complexity, a data visualisation platform that at started at MIT.

 source: Nation