Legal obstacles emerge over free trade deal with Europe
Business Daily Africa | 25 October 2007
Legal obstacles emerge over free trade deal with Europe
Written by Albert Muriuki and Allan Odhiambo
October 25, 2007: A landmark case has entered the Kenyan corridors of justice as a group of farmers and a human rights watchdog move to challenge the State over ongoing negotiations for a new trade agreement with Europe.
Kenya Human Rights Commission (KHRC), a non-governmental organisation, and small-scale growers contend that though the process of the negotiations for a new Economic Partnership Agreements (EPAs) between Kenya and its key trade partner is of national concern, the State has failed to exhaustively involve all those who stand to be adversely affected by the pact.
Opponents of the pact further allege that the Government has refused to share information on the nature and status of the negotiations, even with Parliament, which is the legislative arm of the country.
This case, which comes in the heat of election campaigns, adds political fire under the feet of President Kibaki’s government at a time it is seeking a fighting chance to remain in power.
If this case succeeds many industries could be faced with potential business losses ranging into tens of billion shillings and could also be forced to terminate thousands of factory workers.
“The International Covenant on Economic and Social and Cultural Rights provides that all people may freely dispose of their natural wealth and resources without prejudice to any obligation arising out of international obligations,” explained the group’s lawyer, Mr James Orengo, at a media briefing yesterday.
“This is based upon the principle to any obligation arising out of international law and that in no case may a people be deprived of its means of subsistence.”
Consequently, the KHRC will be going to court this morning to seek for orders stopping the government from signing the new EPA until Parliament and other stakeholders are included in the negotiating process.
According to Mr Orengo, the suit will be filled under a certificate of urgency since there is very little time remaining before the government signs the new EPA. Kenya and other ACP nations have a deadline of December 31,2007 to sign new trade deals.
Failure by Kenya and other ACPs to land new EPAs by close of December would mean trade is reverted to the less generous market access terms under the General System of Preference (GSP).
The Kenyan government says that should its trading with the EU revert to GSP, some of its products which it has been exporting to the market at zero duty would attract duty ranging between 8.5 and 15.7 per cent - a development it says would wipe out an estimated Sh100 billion in trade and investment especially in the horticulture sector.
KHRC executive director, Muthoni Wanyeki, however says even if Kenya signed the new EPA, it is likely to cause revenue loss of between Sh6 billion and Sh9 billion and may lead to a welfare loss for the country equivalent to 0.1 per cent of the Gross Domestic Product (GDP) or Sh25 per capita when all the goods are included in a liberalised process.
According to the official, there will be a potential reduction in national output ranging between 0.6 and one-percentage points and a potential loss of 3,000 jobs.
There will thus be a reduction of taxable trading activities leading ultimately to revenue losses. “Signing the EPA as it is now will be propagating the same old master-slavery situation where countries such as Kenya sign agreements blindly that have no benefits to its people,” says Mr Orengo.
“Slavery is not just the old notion of master and slave, economic slavery is a new form that is worse as it disenfranchises numerous generations”.
Analysts said the case would be ground breaking, as it would give the court a chance to determine who, between the Legislature and the Executive, has the right to sign and enter into trade and commercial treaties and agreements in respect of the country.
It would also shed light into who should be included in the treaty making process when it comes to such issues of national concern. Currently in Kenya, the Executive signs all international trade treaties.
The case could also determine the future of trade arrangement between Kenya and the EU because the current deals would become obsolete in less than three months.
In the academic world, the debate over gains or loss from free trade especially when small developing countries continue to pursue free trade agreements with big rich countries continues to be active, vigorous and often controversial.
The current fight over whether or not to sign an EPA with the European Union stems from historical doubts over whether the previous preferential trade deals under the Lome Convention helped Africa to develop.
The new EPA is now trying to tie trade and aid closely as a part of a strategy of giving Africa more access into the global trading system and providing development aid.
Those opposed to the EPAs have been fighting to have Kenya seek a trade agreement under the generalized preference system. Some more liberal campaigners have even urged African countries to seek a wider global trading market and even lower their tariffs more drastically and without regard to what other developing countries do.
“ I hesitate to offer any recommendations (over whether Kenya should sign an EPA with EU) as I have not seen the fine print of the choices,” said Mr Carsten Kowalczyk, an economic professor at Fletcher School, Tufts University and a leading scholar on global trade issues.
“Let me just say, from a theoretical perspective, and if certain conditions are in place, that (a) unilateral liberalization by the EU offers Africa a welfare improving terms of trade effect, but leaves in place the distortionary effects from Africa’s own tariffs, (b) a free trade agreement between the EU and Africa offers Africa a welfare improving terms of trade effects and a reduction of Africa’s own distortionary trade barriers. By welfare here I mean the welfare of the African countries.
Additional positives could be that if access become more secured, foreign direct investments (FDI) might increase and perhaps associated trade.”
Prof Kowalczyk said that there are some modifying considerations to the argument.
“The magnitude of required adjustments in the African economies (in the sense of required relocation of factors of production between firms and/or sectors) would be larger from the free trade agreement than from an EU unilateral liberalization,” said Prof Kowalczyk, “The reason is that the shock to domestic prices in the African countries would be larger: Unilateral access by the EU raises the domestic relative price, in the African countries.
Tariff elimination by the African countries reduces import prices, and hence further raising the terms of trade in the African countries. The larger the shock to the domestic price, the larger would pressure for adjustment. This can raise important distributional issues.”
For the last 25 years, trade relations between Kenya and other ACP countries and the EU have been based on non-reciprocal trade preferences, which granted nearly all products originating from the ACP countries duty-free access to the European market.
But despite this, the ACPs has seen their share in the EU total imports decline over the years amid marginalisation at the global level with their exports also remained scarcely diversified.
To address this imbalance the two blocs sought to have an alternative trade arrangement with pressure coming from the World Trade Organisation (WTO) to shift from the non-reciprocal trade.
In line with this, ACPs and the EU agreed through a partnership signed in Cotonou in 2001, to establish a new regime in form of Economic Partnership Agreements (EPAs) which are to be concluded between ACP countries that are ready to do so and the European Commission (EC) by December 31, 2007.
However during the intervening period until December 31,2007 the EU accepted that it would provide non-reciprocal, duty free market access to all ACP countries except South Africa.
The non-reciprocal trading arrangement is based on the WTO waiver, which was granted at the 4th ministerial conference in Doha in November 2001. The waiver was granted until the end of 2007, after which it is assumed that it will not be necessary.
As part of the negotiation structure for talks with the EU, the ACPs have configured themselves into six distinct regional groups namely East and Southern Africa (ESA), Southern Africa Development Cooperation (SADC), Economic Commission of West Africa (ECOWAS), Central Africa Monetary Union (CEMAC) and the Caribbean and Pacific.
In this arrangements Kenya for along time conducted its negotiations under ESA backed Common Market for Eastern and Southern Africa (Comesa) even though a legal requirement under the WTO that any deals with the EU be signed within existing Customs Unions (CU) has since seen Kenya move back to the East Africa Community (EAC).
This is for the reason that the EAC customs union is already operational unlike the case of Comesa where the Customs Union will only become operational in March 2008, long after the deadline of signing new EPAs with the EU.
But even within the EAC fold the journey towards new EPA has not been easy as Kenya and Tanzania feuded over the platform to use. All EAC members’ states had been carrying out negotiations under ESA while Tanzania had been doing so under the SADC.
