Login

Register




Building capacity to help Africa trade better

Brexit: scapegoat for EAC countries to back out of the EPA?

Discussions

Brexit: scapegoat for EAC countries to back out of the EPA?

Willemien Viljoen, tralac researcher, discusses the current predicament facing the EAC states regarding the Economic Partnership Agreement to be signed with the EU

After more than a decade of trade negotiations the Economic Partnership Agreement (EPA) between the European Union (EU) and the member countries of the East African Community (EAC) (Burundi, Kenya, Rwanda, Tanzania and Uganda) was finalised in October 2014. This text was initialled and sent for the ‘legal scrubbing’ process which was completed towards the end of 2015. With everything in place, the official signing of the EPA was set to take place on 18 July 2016 in Nairobi, Kenya after which ratification was to take place by October 2016. However, a last minute refusal by Tanzania to sign the trade deal has been a source of confusion and concern among the EU and the EAC member countries. This after Burundi, Kenya, Rwanda, Tanzania and Uganda agreed to sign the EPA at the Ministerial Meeting which took place on 30 June 2016.

The Permanent Secretary in the Tanzanian Ministry of Foreign Affairs, Dr Aziz Mlima said his country would not sign the EAC-EU EPA citing ‘turmoil in the EU occasioned by the impending exit of the United Kingdom. Our experts have analysed the pact and established that it will not be to our local industry's benefit. Signing this pact at the moment would expose young EAC countries to harsh economic conditions in post-Brexit Europe.’ Furthermore, the Ministry has raised concerns over the impact of the EPA on their industrial development efforts. ‘Our experts have established that the way it has been crafted, the EPA will not benefit local industries in East Africa. Instead it will lead to their destruction as developed countries are likely to dominate the market.’ The Ministry went further by stating that Britain is the key trading and investment partner for Tanzania and that a cautious approach and consultations are required prior to signing a trade deal with the EU when their major trading partner is planning on exiting. However, shortly after the refusal Uganda and Burundi seems to have shown their support for Tanzania’s stance on the matter. Thus it seems that currently it is three countries (Tanzania, Burundi and Uganda) against signing versus two (Kenya and Rwanda) in support of signing. This has complicated matters significantly for the application of EAC common policies and has placed Kenya in a precarious position come the October 2016 deadline for implementation if no solution can be found.

Apart from Brexit the three opposing countries have highlighted an array of issues with the EPA which needs to be addressed prior to them signing. However, the majority of these issues should and could have been brought to the negotiating table during the EPA negotiations and refer to issues the countries already agreed upon within the final text:

  • The aspect of tariff liberalisation should be re-negotiated with open-ended timeframes as some of the timeframes the countries have agreed upon will be detrimental to the development of their domestic industries.

  • Strict market access conditions for EAC products entering the EU market acting as non-tariff barriers to entry and adding to the costs for EAC exporters.

  • The nomenclature for the classification of countries should be reviewed so that Kenya will also be treated as a least developed economy. The Permanent Secretary in Uganda’s Ministry of Trade, Julius Onen has actually stated that the EU cannot treat some countries within the same trade agreement as least developed countries, while Kenya is seen as a developing economy; the EU needs to treat the entire EAC block of countries as a least developed economy.

  • The lack of import duties on EU intermediate and finished goods entering the EAC which will lead to the flooding of the EAC market and a loss of revenue for the EAC economies, while giving EU manufacturers access to the EAC market to the demise of local industries.

  • The EPA will reinstate the colonial role of Africa as a supplier of raw materials for European manufacturers and production.

  • Rather focusing on Africa trade and integration efforts, the Continental Free Trade Area (CFTA). According to the Tanzanian Ministry regional integration efforts will serve them best as the CFTA negotiations will give them access to a much bigger market than what the EU could give them (especially if Britain exists the EU) seeing that their goods are more competitive in the African market.

  • Burundi is set to face sanctions by the EU due to political instability which has not yet improved.

However, there are some problems with the reasoning of the opposing countries. Firstly, blaming Brexit for the lack of signing almost seems that Tanzania was looking for a reason to back out of the EPA (something they have done before). Although the United Kingdom is Tanzania’s biggest trading partner in the EU (followed by Germany), in 2014 only 2 percent of Tanzania’s world exports flowed to the United Kingdom, much less than their percentage of world exports to countries like India, China and the United Arab Emirates. Furthermore, the United Kingdom is also one of the biggest destination markets for Kenya’s exports (8% of Kenya’s world exports) (actually the second largest destination market for Kenyan coffee, leguminous vegetables and cut flowers); however, Kenya is not quoting the loss of their second biggest export market as a reason to back out of the EPA. Also, the United Kingdom has already indicated that they will not be activating Article 50 of the Lisbon Treaty this year and even after Article 50 is activated, the United Kingdom has two years to negotiate their exist from the EU; anything but ‘imminent’ as stated by the Tanzanian Ministry. Furthermore, after their exit from the EU the United Kingdom will also need to put trade arrangements in place with non-EU countries.

Secondly, within the next two years it is expected that the economy of Tanzania will be upgraded to middle-income status (developing country) by the EU. This will put them in the same precarious position Kenya will be in if the EPA is not signed and implemented. Under the EPA the EU grants 100 percent duty free, quota free access to its market for all imports from the EAC countries. However, if the EPA is not signed Kenya is the only EAC country which is currently classified as a developing country. Thus while Burundi, Tanzania, Rwanda and Uganda will still be benefitting from duty-free access under Everything But Arms (EBA) exports from Kenya will be facing numerous import duties. Something Tanzania should re-think is that this can also happen to them within two years if the EPA is not implemented; if their country status gets updated to developing country status their exports will also be losing their duty-free access under EBA and face various import duties in the European market.

Thirdly, according to the Vienna Convention Article 10 and 12 not only do initialling a text indicate that the parties authenticate the treaty as definitive but also that parties have expressed to be bound by the treaty signed. The initialling of the SADC-EU EPA and the EAC-EU EPA can be distinguished from one another. The SADC-EU EPA was initialled with the proviso that certain issues still needed to be addressed prior to the finalisation and signature of the text. On the contrary, the EAC-EU EPA was initialled in October 2014 as the final text prior to it being sent for legal scrubbing, signature and ratification. Thus with Tanzania, Burundi and Uganda initialling the text did they not agree to be bound to the agreement signed and should they not stay bound to those provisions agreed upon?

So what is left to be done? The EU Parliament has already indicated that Kenya and Rwanda cannot go at it alone; the EPA needs to be signed by the whole EAC block of countries. Thus the countries have until the beginning of August to develop a common position on the outstanding issues and determine the timelines to ensure ratification by the October deadline. If these issues are not resolved and there is no indication that ratification can still be attained by the October 2016 deadline the EAC countries will have to apply to extend the deadline to see whether the three opposing countries will agree to sign and if the political situation in Burundi will improve. If this cannot or does not happen then Kenya will have no other choice than to apply for Generalised System of Preferences (GSP) or GSP Plus treatment. Previously Kenyan products were granted GSP access to the EU market; however, some of Kenya’s main export products are set to be removed from the GSP list from January 2017 (EU Regulation 2016/330 of 8 March 2016). Thus the only other option is to apply for GSP Plus status (the exclusion does not apply to countries which benefit from GSP Plus). However, this will require Kenya to ensure that they have ratified and implemented core international conventions relating to human and labour rights, the environment and good governance.

.


Sources:

EU Regulation 2016/330 of 8 March 2016;

Vienna Convention;

allAfrica (allafrica.com);

The New Times (www.newtimes.co.rw);

Business Day (http://www.bdlive.co.za/africa/2016/07/18/brexit-threatens-east-african-cohesion-as-kenya-mulls-go-it-alone-trade-deal);

TradeMap (www.trademap.org)

Discussions

Brexit: scapegoat for EAC countries to back out of the EPA?

Brexit: scapegoat for EAC countries to back out of the EPA?

27 Jul 2016

Willemien Viljoen, tralac researcher, discusses the current predicament facing the EAC states regarding the Economic Partnership Agreement to be signed with the EU

After more than a decade of trade negotiations the Economic Partnership Agreement (EPA) between the European Union (EU) and the member countries of the East African Community (EAC) (Burundi, Kenya, Rwanda, Tanzania and Uganda) was finalised in October 2014. This text was initialled and sent for the ‘legal scrubbing’ process which was completed towards the end of 2015. With everything in place, the official signing of the EPA was set to take place on 18 July 2016 in Nairobi, Kenya after which ratification was to take place by October 2016. However, a last minute refusal by Tanzania to sign the trade deal has been a source of confusion and concern among the EU and the EAC member countries. This after Burundi, Kenya, Rwanda, Tanzania and Uganda agreed to sign the EPA at the Ministerial Meeting which took place on 30 June 2016.

The Permanent Secretary in the Tanzanian Ministry of Foreign Affairs, Dr Aziz Mlima said his country would not sign the EAC-EU EPA citing ‘turmoil in the EU occasioned by the impending exit of the United Kingdom. Our experts have analysed the pact and established that it will not be to our local industry's benefit. Signing this pact at the moment would expose young EAC countries to harsh economic conditions in post-Brexit Europe.’ Furthermore, the Ministry has raised concerns over the impact of the EPA on their industrial development efforts. ‘Our experts have established that the way it has been crafted, the EPA will not benefit local industries in East Africa. Instead it will lead to their destruction as developed countries are likely to dominate the market.’ The Ministry went further by stating that Britain is the key trading and investment partner for Tanzania and that a cautious approach and consultations are required prior to signing a trade deal with the EU when their major trading partner is planning on exiting. However, shortly after the refusal Uganda and Burundi seems to have shown their support for Tanzania’s stance on the matter. Thus it seems that currently it is three countries (Tanzania, Burundi and Uganda) against signing versus two (Kenya and Rwanda) in support of signing. This has complicated matters significantly for the application of EAC common policies and has placed Kenya in a precarious position come the October 2016 deadline for implementation if no solution can be found.

Apart from Brexit the three opposing countries have highlighted an array of issues with the EPA which needs to be addressed prior to them signing. However, the majority of these issues should and could have been brought to the negotiating table during the EPA negotiations and refer to issues the countries already agreed upon within the final text:

  • The aspect of tariff liberalisation should be re-negotiated with open-ended timeframes as some of the timeframes the countries have agreed upon will be detrimental to the development of their domestic industries.

  • Strict market access conditions for EAC products entering the EU market acting as non-tariff barriers to entry and adding to the costs for EAC exporters.

  • The nomenclature for the classification of countries should be reviewed so that Kenya will also be treated as a least developed economy. The Permanent Secretary in Uganda’s Ministry of Trade, Julius Onen has actually stated that the EU cannot treat some countries within the same trade agreement as least developed countries, while Kenya is seen as a developing economy; the EU needs to treat the entire EAC block of countries as a least developed economy.

  • The lack of import duties on EU intermediate and finished goods entering the EAC which will lead to the flooding of the EAC market and a loss of revenue for the EAC economies, while giving EU manufacturers access to the EAC market to the demise of local industries.

  • The EPA will reinstate the colonial role of Africa as a supplier of raw materials for European manufacturers and production.

  • Rather focusing on Africa trade and integration efforts, the Continental Free Trade Area (CFTA). According to the Tanzanian Ministry regional integration efforts will serve them best as the CFTA negotiations will give them access to a much bigger market than what the EU could give them (especially if Britain exists the EU) seeing that their goods are more competitive in the African market.

  • Burundi is set to face sanctions by the EU due to political instability which has not yet improved.

However, there are some problems with the reasoning of the opposing countries. Firstly, blaming Brexit for the lack of signing almost seems that Tanzania was looking for a reason to back out of the EPA (something they have done before). Although the United Kingdom is Tanzania’s biggest trading partner in the EU (followed by Germany), in 2014 only 2 percent of Tanzania’s world exports flowed to the United Kingdom, much less than their percentage of world exports to countries like India, China and the United Arab Emirates. Furthermore, the United Kingdom is also one of the biggest destination markets for Kenya’s exports (8% of Kenya’s world exports) (actually the second largest destination market for Kenyan coffee, leguminous vegetables and cut flowers); however, Kenya is not quoting the loss of their second biggest export market as a reason to back out of the EPA. Also, the United Kingdom has already indicated that they will not be activating Article 50 of the Lisbon Treaty this year and even after Article 50 is activated, the United Kingdom has two years to negotiate their exist from the EU; anything but ‘imminent’ as stated by the Tanzanian Ministry. Furthermore, after their exit from the EU the United Kingdom will also need to put trade arrangements in place with non-EU countries.

Secondly, within the next two years it is expected that the economy of Tanzania will be upgraded to middle-income status (developing country) by the EU. This will put them in the same precarious position Kenya will be in if the EPA is not signed and implemented. Under the EPA the EU grants 100 percent duty free, quota free access to its market for all imports from the EAC countries. However, if the EPA is not signed Kenya is the only EAC country which is currently classified as a developing country. Thus while Burundi, Tanzania, Rwanda and Uganda will still be benefitting from duty-free access under Everything But Arms (EBA) exports from Kenya will be facing numerous import duties. Something Tanzania should re-think is that this can also happen to them within two years if the EPA is not implemented; if their country status gets updated to developing country status their exports will also be losing their duty-free access under EBA and face various import duties in the European market.

Thirdly, according to the Vienna Convention Article 10 and 12 not only do initialling a text indicate that the parties authenticate the treaty as definitive but also that parties have expressed to be bound by the treaty signed. The initialling of the SADC-EU EPA and the EAC-EU EPA can be distinguished from one another. The SADC-EU EPA was initialled with the proviso that certain issues still needed to be addressed prior to the finalisation and signature of the text. On the contrary, the EAC-EU EPA was initialled in October 2014 as the final text prior to it being sent for legal scrubbing, signature and ratification. Thus with Tanzania, Burundi and Uganda initialling the text did they not agree to be bound to the agreement signed and should they not stay bound to those provisions agreed upon?

So what is left to be done? The EU Parliament has already indicated that Kenya and Rwanda cannot go at it alone; the EPA needs to be signed by the whole EAC block of countries. Thus the countries have until the beginning of August to develop a common position on the outstanding issues and determine the timelines to ensure ratification by the October deadline. If these issues are not resolved and there is no indication that ratification can still be attained by the October 2016 deadline the EAC countries will have to apply to extend the deadline to see whether the three opposing countries will agree to sign and if the political situation in Burundi will improve. If this cannot or does not happen then Kenya will have no other choice than to apply for Generalised System of Preferences (GSP) or GSP Plus treatment. Previously Kenyan products were granted GSP access to the EU market; however, some of Kenya’s main export products are set to be removed from the GSP list from January 2017 (EU Regulation 2016/330 of 8 March 2016). Thus the only other option is to apply for GSP Plus status (the exclusion does not apply to countries which benefit from GSP Plus). However, this will require Kenya to ensure that they have ratified and implemented core international conventions relating to human and labour rights, the environment and good governance.

.


Sources:

EU Regulation 2016/330 of 8 March 2016;

Vienna Convention;

allAfrica (allafrica.com);

The New Times (www.newtimes.co.rw);

Business Day (http://www.bdlive.co.za/africa/2016/07/18/brexit-threatens-east-african-cohesion-as-kenya-mulls-go-it-alone-trade-deal);

TradeMap (www.trademap.org)

Contact

Email This email address is being protected from spambots. You need JavaScript enabled to view it.
Tel +27 21 880 2010
Fax +27 21 880 2083