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Stalled trade pact with Europe leaves exporters exposed

Business Daily, Kenya

Stalled trade pact with Europe leaves exporters exposed

By George Omonde and David Mugwe

2 December 2010

Kenya’s fish and horticultural exporters face another year of uncertain trade relations with Europe, putting billions of shillings at stake.

At the conclusion of a two-day meeting in Arusha on Tuesday, the East African Community (EAC) ministers in charge of Trade, Industry, Finance and Investment called for an extension of the deadline for signing a preferential pact with Europe.

They have also directed the EAC Secretariat to prepare a fresh budget for negotiating and concluding Economic Partnership Agreements (EPAs) next year.

A statement from Arusha after the meeting chaired by Burundian trade minister Ancilla Ntakaburimvo said the EPAs negotiations will be financed by Sh243 million ($3.4 million) contributed by the Swedish International Development Agency.

The assurance comes just weeks after EAC secretary general Juma Mwapachu blamed the failure to sign the EPAs as earlier planned on November 29 on lack of funds and heightened political activity that engulfed the entire region in the second half of 2010.

“This effectively means the council of ministers and heads of state will not discuss EPAs up to next year,” said an EAC secretariat official.

The EAC Heads of State summit begins its annual meeting in Arusha today, but will focus on measures for improving the region’s food security and combating climate change.

At least 80 per cent of the country’s horticultural produce and 70 per cent of fish are exported to the EU. The country also targets EU in its campaigns to find new markets for traditional exports like tea and coffee.

Government statistics indicate that Kenya generated Sh72 billion from horticulture, Sh3.5 billion from fish and Sh69 billion from tea.

“For Kenya, EU remains the most important destination where our products have enjoyed preferential taxes and exemptions since the Cotonou Agreement was reached,” Prof Japhet Micheni, the Fisheries PS, said in an earlier interview.

The failure to conclude EPAs this year means Kenya’s exporters will continue to rely on the now obsolete Cotonou duty free quota terms without any legal framework to turn to in case of a trade dispute.

The negotiations for EPAs had stalled in June this year when the EAC and European ministerial meeting failed to agree on a raft of contentious issues that have been raised by both sides.

The contested clauses of EPAs document include the Most Favoured Nation (MFN) treatment, bilateral and multilateral safeguards, and taxes on exports.

The civil society and a section of the East African Legislative Assembly — the parties responsible for delaying the signing of the binding trade pact — have maintained their opposition to EPAs until all the contentious issues are resolved amicably.

Unlike Kenya, Tanzania, Uganda, Rwanda and Burundi are grouped as Least Developed Countries (LDCs) — which enjoy the Everything But Arms preferential trade arrangements with developed nations — making them less enthusiastic about EPAs.

Rose Fedilite, a researcher with the Bujumbura-based Economic Development Institute, said EAC member countries are not prepared for the influx of EU products and face capacity constraints in preparing their products for the EU market.

“The EAC’s young industry will not be able to compete in a liberalised market and the tariff removal will lead to a reduction of the government revenue, destabilising the balance of payments,” said Ms Fedilite.