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Preserving duty free and quota free market access by the EAC to the EU after 1 October

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Preserving duty free and quota free market access by the EAC to the EU after 1 October

William Mwanza, tralac Researcher, discusses the current status of the East African Community (EAC) EPA negotiations with the EU*

* This Discussion has been updated following information received from various sources in the tralac network indicating inaccuracies in the media reports cited. Read more here.

Negotiations on the Economic Partnership Agreements (EPAs) have been a long and drawn out process since 2002, but are now gradually drawing to a close. The East African Community (EAC) is the latest configuration of African, Caribbean, and Pacific (ACP) countries to agree on the text for a full EPA with the European Union (EU). According to recent reports, the EAC Council of Ministers agreed to an EU proposal on the full EPA on 20 September, 2014. The grouping was under pressure to have an agreement in place before 1 October, failing which duties on exports of certain products by Kenya to the EU would have kicked in. This could have resulted in Kenya “losing billions in exports to the EU”, according to Kenya’s Commerce and Tourism Cabinet Secretary Phyllis Kandie, who chaired the 20 September meeting. In a further statement, the country’s Cabinet Secretary for Foreign Affairs, Amina Mohammed, has indicated that the EAC has written the EU informing it of the bloc’s agreement on the full EPA. She has however indicated that duties are still expected to come into effect for “one or two months”, as efforts towards actual implementation of the agreement proceed. It is stated that “the EU will impose taxes but will refund the fees after the deal is implemented”.

In a soon-to-be-published trade brief, a full picture will be presented on the EPA process as it has concerned the EAC, including how the interim EPA process (to which the 1 October deadline applies) has proceeded alongside the full EPA process on the one hand, and the EU’s Generalised System of Preferences (GSP) on the other. The GSP scheme has recently undergone some reform, and is what determines the duties that would apply to specific products exported by Kenya to the EU.

At the present moment, it is important to consider closely the relevant legal instrument in the interim EPA process and its relationship with that of the current GSP scheme, so as to determine what options are available to Kenya in preserving its preferential market access to the EU as the deadline approaches. This is more so because the indication that duties paid between 1 October and implementation of the full EPA would be refunded seems to be an executive decision that would be taken by the EU. It is currently not provided for in any legal instrument. Further, if duties are to be refunded, these will be refunded to EU importers of products from the EAC, and not to EAC exporters themselves. The process of making the full EPA text ready for implementation may well take more than two months, a duration that is provided for legal scrubbing alone in the context of the Southern African Development Community (SADC) EPA. Hence between now and the time a full EPA starts to be implemented, it is not a given that importers in the EU would continue to import products from Kenya at the higher duties that would come into effect. There exists the possibility of more of these products being sourced from some of Kenya’s competitors in the EU market, who could presently have more preferential terms. Exporters in Kenya may still be significantly affected in the interim, a period that is itself not fully defined at this point.

It would seem like a more workable alternative, therefore, to consider preserving the current duty free and quota free market access that the EU started providing to EAC countries including Kenya in 2008 on the basis of their interim (or framework) EPA and continues to do so presently. This would be through the EU applying its provisions concerning the continued access of such preferences in a way that does not affect exports from the EAC beyond 1 October. How this could possibly be done can be seen more clearly from provisions concerning the interim EPA process and the GSP scheme taken together.

Starting with the former, it is noted that through Regulation (EU) No 527/2013, the EU Parliament and Council, in 2013, gave the European Commission delegated powers to remove from the list of interim EPA-beneficiary countries, those that would not have taken “necessary steps towards ratification of their respective [interim EPA] Agreements” by 1 October 2014 (see preamble (3) and (4) of Regulation). The five EAC countries were listed among those that could potentially be removed, as they have so far only initialled their interim EPA with the EU, and have not proceeded to sign and ratify the agreement.

The current GSP scheme, on the other hand, is provided for by Regulation (EU) No 978/2012  of the EU Parliament and of the Council. This scheme lists Burundi, Rwanda, Tanzania and Uganda as continued beneficiaries of the ‘Everything But Arms’ (EBA) arrangement of the scheme. This allows them to export all products to the EU on a duty free and quota free basis except arms and armaments. In the case of Kenya, however, it has been moved from previously being a ‘beneficiary’ country of the general arrangement of the GSP, to being an ‘eligible’ country for the arrangement. This arrangement reduces the MFN duty rate that applies to certain selected products by a flat rate of 3.5%. Importantly, the regulation provides in Article 4 (1) that “an eligible country shall benefit from the tariff preferences provided under the general arrangement … unless: (b) it benefits from a preferential market access arrangement which provides the same tariff preferences as the scheme or better for substantially all trade” (Emphasis added).

What this means is that if there exists, at any point, no preferential market access arrangement covering products exported to the EU by an ‘eligible country’ like Kenya, such a country would automatically export to the EU under the general arrangement of the GSP at the duty rates that would apply for specified products. For an eligible country not to export at those duty rates under the GSP, it would need to have a preferential market access arrangement with the EU that offers better terms than the GSP scheme itself. In the case of Kenya, the preferential market access arrangement that it currently exports to the EU under is its interim or framework EPA. Under the terms of Regulation (EC) No 527/2013, it would be removed from the list of countries with interim EPAs with the EU if it does not take necessary steps towards ratification of its agreement by 1 October. Tariffs on specified products would then come into effect under the general arrangement of the GSP.

It must be noted that in other EPA configurations such as the Eastern and Southern Africa (ESA) region, the act of signing the interim EPA alone by Mauritius, Madagascar, Seychelles and Zimbabwe has been deemed as a “necessary step towards ratification” of the agreement. These countries are hence not listed (in preamble (3) of Regulation (EU) No 527/2013) and so are not affected by the 1 October deadline. They will continue normally with negotiations towards a full EPA text beyond this date.

If Kenya was in a similar position to these ESA EPA countries, it would have also had two alternatives at this point – namely its interim EPA and the full EPA – which could have potentially been viewed as a preferential market access arrangement with the EU within the meaning of Article 4 (1) of the GSP scheme referred to above. This is however not the case with Kenya because in 2010, the EAC indicated to the EU that it was not ready to sign the interim or framework EPA. Both parties however decided to incorporate all the provisions of the interim EPA concluded in 2007 into a single consolidated text, i.e. the full EPA, and to push on with negotiations towards conclusion of this full agreement.

It is still on the basis of the interim EPA that EAC countries currently export duty free and quota free to the EU. Such being the case, can it then not be reasonably expected that since it was merged to the full EPA text in the process of negotiations, the EU can exercise its discretion to consider the recent indication of agreement by the EAC, or perhaps initialling of the full EPA text, a “necessary step towards ratification” of the agreement? If this were the case, the EU Commission would not remove the EAC countries from the interim-EPA beneficiary list through Regulation (EU) No 527/2013 come 1 October. Kenya would still have a preferential market access arrangement with the EU as per the provisions of the GSP scheme, and would not have to incur the higher duties that this scheme provides for, as it continues to export under the interim EPA until the full EPA starts being provisionally implemented and later enters into force.

As things currently stand, it seems that there is scope for the relevant provisions of the EU’s regulations on interim EPAs and the GSP scheme to be applied in a way that preserves duty free and quota free market access by the EAC to the EU beyond 1 October. This would be a less disruptive alternative to duties coming into effect under the GSP in the interim while the two parties are working towards implementation of the full EPA. It remains to be seen over the coming week whether such application of the EU’s regulations would be a plausible option.

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Sources:

Bloc strikes deal with EU on fresh produce. [Online]. Available at: http://www.nation.co.ke/business/Bloc-strikes-deal-with-EU-on-fresh-produce/-/996/2460896/-/2c4hgh/-/index.html

Fact sheet on the Economic Partnership Agreements: The Eastern African Community (EAC). [Online]. Available at: http://trade.ec.europa.eu/doclib/docs/2009/january/tradoc_142194.pdf

Overview of EPA Negotiations. [Online]. Available at: http://trade.ec.europa.eu/doclib/docs/2009/september/tradoc_144912.pdf

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