Business Day | 24 June 2020
What Kenya should consider in free trade deal with America
By UCHE EWELUKWA OFODILE
Kenya and the United States are gearing up to start negotiations on a possible Free Trade Agreement (FTA). Based on the US negotiating objectives released in May, Washington is hoping for a “comprehensive, high-standard agreement” that among other things secures comprehensive duty-free market access for US goods, services and investments.
No sector of the Kenyan economy is off the table including sensitive sectors like agriculture and textile.
Nairobi currently enjoys preferential access to the US market under the African Growth Opportunity Act (AGOA), which is set to expire in 2025.
The Trump administration wishes to replace the AGOA preferential scheme with a deal that among other things ensures zero tariffs on all goods, zero restrictions on foreign direct investment, services, and cross-border data flows, as well as zero discriminatory non-tariff barriers.
A comprehensive trade deal between the No. 1 economy in the world and the No. 67 economy in the world could potentially spur economic growth and improve living standards in Kenya but, from every indication, is fraught with major problems, perils, and pitfalls for Kenya and regional integration efforts in Africa.
Despite public announcements of impending talks, a trade deal is not inevitable. Given the significance and likely impact of a possible Kenya-US deal, Nairobi should, for starters, be guided by these four Rs: Reflect, Respect, Resolve and Re-imagine.
Reflect. According to the 2020 Global Report on Food Crisis, in 2019, the acute food insecurity in Kenya deteriorated largely as a result of very late and erratic long rains as well as flash floods and landslides.
With rising food insecurity in Kenya, devastating effects of climate change, and on-going negotiations of Phase II of the African Continental Free Trade Area agreement (AfCFTA) this is arguably the worst time for Kenya to embark on a comprehensive trade deal that guarantees duty-free market access to the largest economy in the world.
It is deeply concerning that the US appears to be in a rush to conclude a comprehensive trade deal with Nairobi before the terms of the AfCFTA are fully settled. It is also unfortunate that Nairobi is yet to release its negotiation objectives or consult with key stakeholders on the issue.
Before embarking on any trade talks, it is imperative that Nairobi carry out a meaningful scoping assessment, engage in open and broad consultation with stakeholders regarding trade priorities and objectives, and based on consultation, decide whether it makes sense to enter into trade talks with the US at this time and if so, publish its negotiation objectives.
On this issue, Nairobi is advised to keep a close eye on US-UK trade talks, which commenced on May 5.
Before starting trade talks with the US, the UK government launched a 14-week public consultation seeking views on potential FTA with the US.
Respect. The Kenyan Constitution boasts a very robust Bill of Rights section. Unlike the American Constitution, the Kenyan Constitution explicitly guarantees economic and social rights including the right to food, the right to a healthy environment, and consumer rights.
The concept of vulnerability is also built into the Constitution and requires that Kenya respect and protect the rights of vulnerable groups.
Negotiating a Kenya-US FTA would only make sense if economic models suggest that the benefits of a deal significantly outweigh the costs. Based on the US negotiating objectives and given the US emphasis on “regulatory compatibility” and “strong enforcement” of trade deals, a Kenya-US trade deal has the potential to impermissibly encroach on Kenya’s domestic policy space, impose a costly administrative burden on Kenya, erode hard-won World Trade Organisation (WTO) flexibilities, particularly regarding public health and impose WTO-extra and WTO-plus disciplines that Kenya is neither ready for nor able to implement. What is more, it is important that extremely sensitive issues should be completely off the table and that the Kenyan Parliament is fully involved in the process.
On this latter point, Washington has pledged “to continuing to work with Congress as the negotiation with Kenya begin, and … to working with Congress closely and throughout the process.” The Kenyan people deserve no less.
Resolve. Assuming it decides to commence trade talks, Nairobi must determine and publicly identify those issues that must be completely off the table.
In its trade talks with the US, the British government has declared publicly that National Health Service (NHS), the price the NHS pays for drugs, and the services the NHS provides will not be on the negotiating table and that the NHS “is not, and never will be, for sale to the private sector, whether overseas or domestic.”
Nairobi should declare publicly what issues it considers non-negotiable. Furthermore, it must resolve to only accept a deal that works for all of Kenya and does not undermine regional integration efforts in Africa.
Nairobi must also resolve to engage in a thoughtful and deliberative process and must be ready to walk away from a bad deal. Trade deals are complex and are fraught with risks and challenges.
Consequently, Nairobi must resist any pressure to speed up trade talks. Recent precedents support this strategy. After six months of trade talks, the US-Japan negotiation only produced a mini-deal. Similarly, after 11 months of negotiations, the US and China settled for a “phase on” deal.
Reimagine. A clear, definitive, proactive and development-oriented trade, investment and industrialisation strategy is imperative for Kenya and all countries in Africa. There is more at stake than just Kenya-US trade relations.
The time is ripe for Kenya and other countries in Africa to design and pursue sustainable and poverty-reducing trade, investment and industrial policies.
Reimagining trade policies requires that Nairobi reject any pressure to base negotiation on US model agreements or recent FTAs that the US has concluded. It requires that Kenya’s trade policies are anchored on national visions and strategies, as well as on continental visions, strategies and principles including the principle of solidarity and collective action between the African countries. It also requires that Nairobi resist and reject the “divide and rule’ tactics of major powers that have wrecked and continue to wreak havoc on Africa. A comprehensive trade deal cannot and should not be the only option on the table. Nairobi may opt for a phased approach. Like we saw with China and Japan, a mini-deal, which addresses a handful of selected issues and leaves big and deeper issues for a later date is possible.
Nairobi could also join forces with other countries in Africa to press for a renewal of the preferences available under the AGOA, which will expire in 2025.
Trade talks between the UK and the US have been likened to a David versus Goliath battle. One is therefore at a loss to describe the impending matchup between the Washington and Nairobi.
Nairobi must tread carefully. According to an African proverb, “caution must not be confused with fear”. If and when negotiation starts, Nairobi will be negotiating with an administration that has steadfastly pursued an America First policy and one that has promised to produce “substantive results for US consumers, businesses, farmers, ranchers, and workers, consistent with US priorities”.
It is imperative that Nairobi only negotiates deals that deliver tangible, developmental and poverty-reducing gains for the Kenyan people.
Consequently, Kenya must not enter into trade talks out of fear — that AGOA access will be terminated. Nairobi must also avoid becoming a casualty of an economic or geopolitical war between the world’s economic powers.
Guided by continental goals and visions, the time has come for countries in Africa to forge a new path based on the principles of people-centred development, sustainability, policy coherence, respect for domestic policy space, and African unity and solidarity.
Ofodile, is Professor of Law, University of Arkansas School of Law.