Building capacity to help Africa trade better

The Kenya-UK post-Brexit Trade Agreement


The Kenya-UK post-Brexit Trade Agreement

The Kenya-UK post-Brexit Trade Agreement
Photo credit: Picture Alliance

Since the beginning of this year the United Kingdom (UK) ceased to be a member of the European Union (EU). The Withdrawal Agreement entered into force on 31 January 2020. However, the UK continues to trade under EU rules till the end of 2020. This applies to direct EU-UK trade as well as trade between the UK and third countries with preferential access to the EU markets. African states fall in this latter category.

Under the Withdrawal Agreement there will be, till the end of 2020, a Transitional Period, which provides an opportunity for the EU and the UK to conclude a new trade agreement in order to provide for a preferential trade arrangement between them. Preferential treatment will, till the end of this year, also apply to goods exported to the UK under preferential arrangements that have been put in place while the UK was a member of the EU.

The EU-UK negotiations for concluding a new bilateral trade deal are still to be finalized. There are outstanding issues about matters such as fisheries and competition. Should London and Brussels fail to reach an agreement within the next few weeks, future UK-EU trade (which kicks in on 1 January 2021 when the Transitional Period ends) will be conducted under the most favoured nation (MFN) rules of the World Trade Organization (WTO). That will mean higher tariffs, more difficult clearance procedures and the end of the frictionless trade and absence of red tape requirements enjoyed by the UK while a member of the EU.

Such a development will also affect third parties such as African countries exporting goods to the UK, traditionally an important trading partner. African exporters generally enjoy quota-free duty-free access to the EU countries, including the UK while it was an EU member. These preferences are granted under the Generalized System of Preferences (GSP) of the EU, its Everything but Arms (EBA) arrangement for Least Developed Countries (LDCs) and the SADC-EU Economic Partnership Agreement (EPA) with the member states of the Southern African Customs Union (SACU) and Mozambique. African exports (mostly agricultural products) exported under these arrangements are only cleared once, at the first port of entry. When subsequently distributed to different EU member states, it will be a hassle-free process. Further distribution (e.g. from Rotterdam to Germany or the UK) will move freely because such goods then circulate within the single customs territory of the EU.

It is against this background that new preferential trade agreements between the UK on the one hand, and African nations presently trading with the UK (and the EU) on the other, become very important. And they must be concluded before the end of this year. On 1 January 2021 there will be new rules for trade with the UK, irrespective of whether an EU-UK deal is clinched in time or not. From the beginning of 2021 the UK’s trade relations with the EU can be based on only one of two legal foundations; a new UK-EU preferential deal or the WTO’s MFN rules.

The most optimal scenario for African exporters of goods to the UK will be a new preferential bilateral EU-UK trade agreement. That could also cover logistical benefits such as easier clearance requirements and the transportation of goods from an EU port of first entry under EU certificates of origin. In the absence of such a deal, goods exported from African states to the UK will have to be under customs supervision when transported from inside the EU to a UK port, or will have to be exported directly to the UK.

On 3 November 2020 Kenya signed a post-Brexit preferential trade deal with the UK, paving the way for a long-term treaty that will shield East African Community (EAC) exports from the high tariffs that would apply under MFN rules. The two countries announced that they have reached an “agreement in principle” on the continuation of duty- and quota-free access of Kenyan exports after the UK finally exits the EU at end of this year.[1]

The Kenyan Trade Secretary is reported to have said that the two countries have concluded an economic partnership agreement based on the stalled EU-EAC EPA’s text which Kenya ratified in October 2016. She added that a comprehensive package of benefits has been agreed to secure long-term and predictable market access for exports originating from the EAC Custom Union. “Our key exports such as flowers and fresh produce will benefit from enhanced privileges for agricultural goods that confers originating status to EAC exports, even if they pass through EU’s 27 countries.”[2]

A statement from UK officials noted that the main Kenyan exports to the UK in 2019 were coffee, tea and spices (£121 million), vegetables (£79 million) and live trees and plants, mostly flowers (£54 million). The UK market accounts for 43% of total exports of vegetables from Kenya as well as at least 9% of cut flowers. This agreement will also guarantee continued market access for UK exporters, who together sold £815m in goods and services to Kenya last year. As the largest economy in East Africa and among the top 10 across the continent, Kenya is an important trading partner for the UK. The deal is based on the terms previously agreed between the EU and the EAC and includes clauses to allow other East Africa Community states to join in the future.[3]

This is good news for Kenya, but that there is unhappiness in the EAC, which also includes Uganda, Rwanda, Tanzania, Burundi and South Sudan. It has been reported that some other EAC members are “strongly opposed” to the Kenya-UK deal. They claim that Nairobi’s unilateral deal with London undermines the EAC’s customs union (CU). They also want more time to prepare for and undertake joint negotiations.[4]

It is true that a CU must have a single customs territory (there is free circulation of goods among the members) and a common external tariff (CET).[5] But African CU’s (with the exception of SACU, which dates back a hundred years and is also an excise union) often adjust these rules. Tanzania is, for example, the only EAC member trading with SADC members under SADC FTA preferences. This is a major modification of the CET dimension of a CU. Goods exported from e.g. South Africa to Tanzania may not from there be exported to Kenya. Should this happen, an internal arrangement is required to block such goods at the Tanzania-Kenya border, or to levy MFN rates on SACU exports to Kenya. Then there will not be free circulation in the EAC. If this is accepted practice in the EAC, the same may presumably happen to goods imported into Kenya from the UK under the new bilateral deal.

These internal uncertainties undermine the integrity of a CU. They need to be resolved along the lines of the multilateral rules applicable to a CU. And there will be more of these challenges in the post Brexit phase. Free trade deals with external parties such as the United States are also in the pipeline. Kenya has already started negotiations with Washington.

African Regional Economic Communities (RECs) may face difficult choices about rules-based trade and regional integration in the times ahead. If the relevant rules are not respected, regional trade arrangements will become uncertain and unpredictable. They may even unravel, as happened previously in East Africa. Potential investors will watch these developments with concern.

[1] Business Daily Kenya.

[2] Ibid.

[3] https://www.gov.uk/government/news/uk-and-kenya-secure-a-trade-agreement

[4] https://www.politico.eu/article/uk-kenya-trade-deal-threatens-trade-in-east-africa/

[5] Art XXIV GATT defines CU’s as such. A CU is an exception to the MFN rule of the WTO.

About the Author(s)

Gerhard Erasmus

Gerhard Erasmus is a founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch. He holds degrees from the University of the Free State, Bloemfontein (B.Iuris, LL.B), Leiden in the Netherlands (LLD) and a Master’s from the Fletcher School of Law and Diplomacy. He has consulted for governments, the private sector and regional organisations in southern Africa. He has also been involved in the drafting of the South African and Namibian constitutions. He grew up in Namibia.

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