The Nation, Kenya
What Kenya is seeking in free trade deal talks with America
20 July 2020
By Allan Olingo and Anthony Kitimo
Kenya’s need to export value-added agricultural products dominated the first round of talks with America after its formal launch on Wednesday last week.
On the negotiation table, the US will be pushing its document with 24 chapters to be adopted so as to get access to almost all Kenyan economic sectors including State-owned enterprises.
Kenya will, on the other hand, present its 14 areas which seek to provide safeguards to secure its industrial and agricultural sectors to avoid dumping America products in the country.
In its objectives document, Nairobi wants to enter negotiation cautiously to make sure that the free trade agreement provides safety nets and exceptions to protect Kenya’s economic interests.
The US is seeking unfettered access to the Kenyan market in the proposed free trade agreement, which could have far-reaching implications on Kenya’s critical agricultural sector and its growth plans
In a virtual dialogue, the Kenyan team led by Industrialisation, Trade and Enterprise Development Cabinet Secretary Betty Maina, said there was need for agricultural value added products to be allowed in US market while America pushed for the right regulations to ensure the outcome of the agreement is backed up by right regulatory regime.
According to US players, regulation focusing on digital taxes, intellectual property, and corruption should form a vital part of the deal.
“We must promote good regulatory practices that encourage markers for goods and services. Investors are excited about an environment that guarantees success by following the rules,” said US Ambassador to Kenya Kyle McCarter.
Chairman of the Agriculture Sector Network, Dr Bimal Kantaria, emphasised the need for Foreign Direct Investments (FDI) into the agricultural sector to facilitate value addition for horticulture and floriculture.
Mr Kantaria asked stakeholders to channel more funding into the sector.
In the meeting hosted by the Corporate Council on Africa (CCA) and the Kenya Private Sector Alliance (Kepsa), the private sector expressed optimism in the talks hoping to expand their market share in US once the deal is signed.
Business experts have already warned Kenya to be cautious considering she is entering into an agreement with a superpower.
“The FTA will be ideal for Kenya, but this will depend on how the talks end. Kenya needs to be cognisant it is negotiating with super power and it has to keep interests of its businesses and people at heart. The team should not be dazzled by people on the table,” said Nick Nesbitt, chairman of the Private Sector Consortium who is also chairman of the Kenya Private Sector Alliance and the East Africa Business Council.
Mr Nesbitt said a free trade agreement will not only benefit Kenyans but Africa at large, and that it will complement regional integration efforts within the East African Community (EAC), as well as act as a landmark in African Continental Free Trade Area (AFCFTA) considering Kenya will be the second county in Africa and first in sub-Saharan Africa to achieve that deal.
“We have learnt a lot about Morocco which entered into such bilateral trade agreement with the US in 2006 and its economy has grown from $1.13 billion when the agreement came into force to $5.8 billion in 2018.
We support the talks since Kenya will benefit through increased market access abroad,” said Mr Nesbitt.
American Chamber of Commerce-Kenya chief executive Maxwell Okello said investment by US companies in Kenya will greatly benefit SMEs, which will play a key role in supplying firms with raw materials.
“We expect different sectors ranging from education, trade, tourism among others to grow significantly once the agreement comes into force and there is nothing to worry since Kenyan government is very clear in its negotiating objectives that it will protect its nascent sectors such as textiles and agriculture," said Mr Okello.
Two weeks ago, Kenya and US formally launched talks for a bilateral trade pact that the pair hopes could serve as a model for additional agreements across the African continent.
The discussions, which begun after lapsing of the 90 days statutory notification and the publication of the two countries negotiations objectives, kicked off despite criticism that the Free Trade Agreement could undermine regional integration.
According to the Trade and Investment Working Group (TIWG), the talks are scheduled to last for at least 12 months before moving to the last stage. During the launch, Ms Maina and US trade representative Robert Lighthizer were hopeful of a comprehensive, high-standard agreement that can serve as a model for other agreements across Africa.
“Kenya is a recognised leader across the continent, an important strategic partner of the United States, and there is enormous potential for us to deepen our economic and commercial ties,” said Ambassador Lighthizer. “We believe this agreement with Kenya will complement Africa’s regional integration efforts, including in the East African Community and the landmark AfCFTA, and the United States pledges its continued support to help the AfCFTA achieve its fullest potential.”
Ms Maina, on the other hand, said striking the bilateral trade agreement was crucial to "secure trade and investment relations" ahead of the lapse of the African Growth and Opportunity Act (Agoa) in 2025, which eliminates import tariffs on goods from eligible African nations.
She said the pact will promote the export of textiles, clothing, tea, coffee, and fish to the US - currently Kenya’s third-largest export market and seventh overall trading partner.
“Increasing and sustaining export performance to the United States requires a trade arrangement that is predictable and guarantees preferential market access for Kenyan products. Kenya is also keen to attract Foreign Direct Investment from the US that will improve vertical and horizontal linkages in the Kenyan economy," said the CS.
The CS said the FTA will increase inflow of investment from the US and create job opportunities as well as catalyse other value chains that will benefit micro and small enterprises in Kenya.
Plans to begin talks on the bilateral trade agreement were announced after President Uhuru Kenyatta visited his America counterpart Donald Trump in February where they elevated the Washington-Nairobi bilateral relationship to a strategic partnership.
In addition to the launch of trade negotiations, America and Kenya agreed on a strategic co-operation framework to provide technical assistance and trade capacity building in Kenya with the aim of maximising Kenya’s utilisation of the Agoa trade benefits for the remaining years of the preference programme.
The framework will also support development and competitiveness of key agricultural value chains in Kenya.
Late last month, Kenya set terms ahead of trade talks as it moves to protect key economic sectors and shield several strategic State-owned enterprises from the deal.
The US summary of key negotiation points in the proposed bilateral deal will see Kenya lift tariffs on all American agricultural products and open its maritime, textile, telecommunications financial services and other industries, including those classified as sensitive sectors to the foreign investors.
President Trump’s administration has been pursuing an America First policy in its trade negotiations with other countries as part of his attempt to counter a surging Chinese economic and political clout around the world.
In the proposed FTA, the US is seeking to secure comprehensive market access for its agricultural goods in Kenya by reducing or eliminating tariffs and providing ‘’reasonable’’ adjustment periods for import-sensitive agricultural products.
It intends to push for establishment of new and enforceable rules to eliminate “unjustified trade restrictions,” which means its agricultural products will be allowed into Kenya at zero or reduced tariffs.
Washington expects Kenya to streamline and expedite customs treatment of its products for express shipments, as per proposals in the document tabled in the Congress on May 22, by ensuring there is simplified customs procedures for low-value goods.
The US proposes the development of rules of origin to ensure that benefits of the agreement go to products genuinely made in the US and Kenya and to ensure that the rules of origin incentivise production in the territory of the parties.
The US also wants to promote supply of its telecommunications services by facilitating market entry, secure commitments to provide reasonable network access for telecommunications suppliers and establish provisions protecting telecommunications services suppliers’ choice of technology.
It also wants to expand market opportunities for its financial service suppliers “to obtain fairer and more open conditions" of financial services trade. Washington also intends to ensure free or reduced tariff on its digital products and to ensure Kenya does not discriminate treatment of digital products transmitted electronically.
The US, during the negotiations, will also table rules that, if adopted, will provide full market access for US pharmaceuticals and medical devices.
Kenya on the other hand also submitted its trade objectives where it will be seeking to protect key economic sectors and shield several strategic state-owned enterprises from the Free Trade Agreement (FTA) commitments.
According to Kenya’s negotiation objectives document released late last month, Nairobi seeks to enter into negotiation cautiously to make sure that the FTA provides safeguards, and exceptions to protect Kenya’s nascent industrial and agricultural sectors to avoid dumping America products in the country.
“The Kenya-US FTA will include negotiations under which Kenya is seeking to have the FTA deliver on general and specific objectives and they will be based on a number of World Trade Organisations (WTO) trade remedies laws, namely Subsidies and counter vailing measures, anti-dumping and safeguard..” read part of Kenyans objectives.
To achieve this, Nairobi will gradually remove the tariffs on the US products starting with steep tax cuts on items deemed to be of interest to the economy which mostly include agricultural products and textile.
While implementing FTA, Kenya will ensure that there is no disruption of Kenya’s market access into the USA after the African Growth and Opportunities Act (AGOA) expires on September 30th 2025 by securing a predictable trade regime with the U.S that is AGOA Plus.
Nairobi also says it will strive to stimulate and to ensure that the FTA agreement pays fidelity to Kenya’s commitments and obligations with existing multilateral, regional and bilateral trade agreements for which Kenya has signed and ratified and also create room for EAC member to enter into future US trade deals.
“Kenya seeks to protect existing EAC and Continental trade protocols and negotiations on customs should be based on the existing Trade Facilitation Cooperation Agreement between the USA and EAC, and WTO Customs Valuation. FTA will create a framework through which any EAC Partner State that did not participate in these negotiations at the outset is allowed to join the negotiations, subject to terms and conditions that would be agreed between the USA and Kenya," said Kenya in its wish list.
Regional trade officials have criticised the proposed FTA, saying it is potentially in breach of the Customs Union Protocol of the EAC, of which Kenya is a signatory.
However, the Ms Miana has said the team constituted will seek to get the best possible trade and investment deal out of the negotiations, “putting into consideration the promise made to our EAC members.”
Ms Maina defended Kenya, saying it has abided with Section 37 of the EAC trade protocol, which calls for any EAC member state to inform other partners whenever it intends to offer preferential market access to a third-party since member states share a common Customs territory before such a deal is signed.
The controversial Kenya-US deal, once signed, is meant to replace the African Growth and Opportunities Act (Agoa) agreement that expires in 2025.
It has, however, raised concerns within the EAC where critics described the planned bilateral agreement as a breach of regional and continental trade protocols since Kenya had not formally written to EAC trade officials in Arusha regarding the intended new deal before it was made public. African Head of States have discouraged African Union member countries from entering into bilateral free trade negotiations with third parties to avoid jeopardising the AfCFTA.
The planned agreement between US and Kenya is a first for US trade relations in sub-Saharan Africa and signifies a shift from multilateral trade deals, such as Agoa, to bilateral free trade agreements with individual countries.
Agoa is the current trade preference programme in 2000 providing duty-free entry into the US for almost all African products, from oil and agricultural goods to textiles, farm, and handicrafts.