Why EAC Region is Hesitant to Sign EU Trade Deal

January talks in Brussels for an Economic Partnership Agreement (EPA) between the EU and the East African Community ended without resolving certain contentious issues, including the so-called non-execution clause. 

A worker harvests roses at a flower farm in Kenya. Earnings from the sector have been flat. Photo/FILE

A worker harvests roses at a flower farm in Kenya. Earnings from the sector have been flat. Photo/FILE

Differences over a clause that makes trade terms between the European Union and the region conditional upon the latter’s adherence to certain governance benchmarks threaten to delay an agreement between the two sides.

The January talks in Brussels for an Economic Partnership Agreement (EPA) between the EU and the East African Community ended without resolving certain contentious issues, including the so-called non-execution clause, a source close to the process told The EastAfrican.

“The regional countries are concerned that if that clause passes, future trade relations between the two sides will be based on governance issues as opposed to commercial concerns. They are also concerned about the tendency of these variables to be loosely defined by the West, depending on the country involved,” said a government official on condition of anonymity.

The principle of non-execution gives a trade partner the right to defer contractual obligations in case a country is involved in massive human-rights violations, default on good governance criteria or non-observance of the rule of law.

Critics of the non-execution clause say that it is subject to unilateral interpretation and execution.

As an example, they cite the tendency by European firms and countries to disregard governance indices in resource-rich, high-return African countries like Angola, Gabon and Equatorial Guinea, while others like Zimbabwe have been the subject of trade sanctions.

The other contentious issues, according to a briefing document prepared by the EU on the talks, are concerns around the conferment of Most Favoured Nation status and export taxes.

Last week, the EU delegation in Kenya played down any differences and announced that another round of talks was planned for next month.

“I am optimistic that we will have an EPA by the October 1 deadline,” said EU ambassador to Kenya and head of delegation Lodewijk Briet.

In the meantime, it would appear that the window is fast closing for East Africa as it tries to sign a new trade deal with the European Union following the collapse of latest talks in Brussels last month.

EU-EAC trade is valued at $7.9 billion with the region mainly exporting plants, flowers, coffee, vegetables, fish and tobacco while buying machinery, chemicals and vehicles in return.

Kenya’s Ksh110 billion ($1.3 billion) fresh produce export trade with the EU is especially at risk, because should the October deadline lapse, the country will lose the preferential tax-free access it currently enjoys.

This is because Kenya, unlike its EAC partners, is not classified as a Least Developed Country in World Trade Organisation nomenclature.

Kenya is the biggest exporter of cut flowers to the EU and a major exporter of horticultural produce and vegetables to the same market.

Kenya earned $656.1 million from horticulture exports in the seven months of 2013. This represents an 8.8 per cent rise in value compared with the same period in 2012, when the country made $602.8 million.

If no pact is signed, earnings from Kenya’s hugely successful horticultural industry could be greatly diminished, as key buyers, like the Dutch flower auctions, seek cheaper options.

From a level of no taxes, exporters will have to grapple with new levies, starting from a level of 8.5 per cent to as high as 15.7 per cent.

A lot is riding on the talks for Kenya. The other EAC states, which are classified as LDCs, will continue to enjoy preferential access to the EU market even if the EU/EAC talks do not result in an EPA by the deadline.

– The East African