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EPA talks collapse, need ‘political solutions’
The East African Community and the European Union have yet again failed to agree on the long awaited Economic Partnership Agreements, putting the principal market for Kenya fresh produce exports including cut flowers in jeopardy.
The collapse of the talks held in Kigali, could see the exports – currently accorded duty free access to the EU – being taxed at between eight and 12 per cent when the current interim arrangement lapses, making them uncompetitive in the face of intense competition from Tanzania, Ethiopia and Colombia.
The two trade blocs disagreed on provisions for agricultural subsidies that farmers in the EU benefit from, duties and taxes on EAC exports and non-trade issues such as good governance and transparency.
The two parties blamed each other for the deadlock, with some officials of the EU delegation accusing the EAC members of coming up with new demands in the negotiation meetings.
Negotiators from the two trade blocs had also failed to reach a deal on the EPA negotiations during the January talks in Belgium.
EAC duties
On taxes on exports, the EAC maintained that it should have the authority to determine when to impose the duties without seeking authorisation from the Economic Partnership Agreement Council as demanded by the EU.
The EAC members maintained that taxes on exports of raw materials were critical in developing the region’s agriculture-based industries and also maintaining currency stability especially when global commodity prices surge.
“Export taxes are used by countries when they want to stabilise their currencies, when faced with situations of food shortage so that you do not sell food simply because you are expecting higher prices abroad, leaving your home country without food,” said Dr Karanja Kibicho, Principal Secretary in Kenya’s Ministry of Foreign Affairs and international Trade, who was the head of the EAC negotiating team in Kigali.
The EU, however, insists that such taxes should be imposed with the authorisation of the Economic Partnership Agreement Council and that when duties are effected under special circumstances with regard to revenue, food security and environmental protection, EAC should only do so after notifying the EU.
“The EAC wants to have the express authority to impose the export taxes, while EU insists on its position, which is viewed as a way of helping it predict the availability of raw materials once the agreement comes into force,” said Kenya Flower Council chief executive officer Jane Ngige, who also attended the Kigali meeting.
On subsidies, the EAC team expressed fears that allowing in subsidised agriculture produce from the EU would destabilise the local market and choke the growth of agriculture-based industries, which are the source of livelihood for thousands of citizens.
EAC members insisted there must be a provision in the EPA that restricts such products’ access to the EAC market or excludes the EAC as a destination for agricultural exports benefiting from subsidies.
“Allowing in those products will end up killing our agriculture because we are not at the same level of development, and we do not have the same level of support to offer to our farmers,” said Dr Kibicho.
The head of the EU delegation to Rwanda, Michael Ryan, disagreed with Dr Kibicho, saying the EU made an offer to the EAC to guarantee that no export refunds would be applied to EU exports to the EAC.
“Unfortunately, this offer was neither acknowledged nor reciprocated. We tried to explain to the EAC negotiators that the EU does not provide domestic agricultural support for exports. The EU of today is not the EU of 20 years ago.
“There is no trade-distorting effect of the EU’s current agricultural policy. Agricultural support is an issue for discussion at the WTO level in Geneva, and not in bilateral arrangements,” said Mr Ryan.
He also dismissed remarks that the EU was opposed to the EAC imposing taxes on EU exports to protect its young agriculture-based industries terming it a complete fallacy.
“The EU has agreed with the EAC several types of safeguards for domestic business, one of which was specific to infant industries. Products from infant industries in the EAC are protected from liberalisation in the EPA text we have on the table. On top of that, we have agreed to include export taxes imposed by EAC to give further protection to infant industries. The EU has shown a great deal of flexibility on this point,” said Mr Ryan.
The two blocs also failed to agree on whether to include or exclude non-trade issues, mainly transparency and good governance, in the agreement. While the EAC wants any reference to the Cotonou Agreement removed from the document, the EU is insisting on its retention.
The EAC team accuses the EU of pushing for the retention of sections of the Cotonu Agreement in the final document, terming the latter’s insistence on non-trade issues suspicious.
The EAC is particularly uncomfortable with sections of the Cotonou Agreement that touch on countering proliferation of weapons of mass destruction, protecting and promoting human rights and fighting corruption.
“We do not know what their intentions are,” said Dr Kibicho.
The deadlock, according to the EAC negotiators, can only be resolved at an EU-EAC ministerial level. Ms Ngige said a ministerial meeting could be organised in September to iron out the issues before the October 1 deadline for concluding the EPA.
“The meeting was for senior government officials and since we did not agree, it will have to be referred to the ministerial level. The disagreements need a political solution,” Ms Ngige said.
However, both sides expressed hope that the pending issues will be resolved.
“There is no question at all of collapse of EAC exports to the EU. Four of the five EAC states enjoy ‘everything but arms’ trade arrangements with the EU; this means, they will continue with duty free and quota free access to EU markets, just as they do now,” said Mr Ryan.
According to him, only Kenya will suffer on its cut flower sales to the EU.
“From October 1 exports of cut flowers from Kenya will fall under the GPS (Generalised System of Preferences) regime, and even then it will still benefit from certain duty discounts into the EU through having MFN (most favoured nation) status. But, it will pay duties on its cut flower exports to the EU, inevitably, as a result of the absence of an EPA with the EU,” Mr Ryan added.
Kenya exports flowers to the EU worth Ksh46.3 billion ($537 million) and vegetables worth more than Ksh26.5 billion ($307 million) annually. The EU takes about 40 per cent of Kenya’s fresh produce exports.
A recent report by the EAC Sectoral Council on Trade, Industry, Finance and Investment showed that senior officials had by the end of May reached an agreement on the rules of origin text as well as the most favoured nation (MFN) clause.
The MFN clause would bar EAC members from entering into bilateral preferential trade arrangements with countries that have no similar arrangements with the EU.
Additional reporting by Jeff Otieno.
