Ten why Kenya-US bilateral trade talks matter

Tuesday, September 29th, 2020 00:00 |
Kenya-US bilateral trade.

In August 2018, President Donald Trump and President Uhuru Kenyatta established the US-Kenya Trade and Investment Working Group to explore ways to deepen the trade and investment ties between the two countries. It was also meant to lay the groundwork for a stronger trade relationship in future. Here are the likely areas which the United States and Kenya talks will focus  on during the ongoing discussions.

1. Shield Kenya from trade deal uncertainties

This trade agreement makes sense from a political perspective and shields Kenya from the uncertainties over the extension of the Africanwide trade deals and the uncertainties of political party changes in Washington.

As a trade tool, the merits of a free trade agreement depend a lot on the extension (or not) of AGOA after 2025 under President Trump or Biden.

More principally, the extension of the Africa market access law will depend on the extent to which sub-Saharan Africa states will be regarded as important flashpoints for US-China commercial competition in Africa

2. To boost exports and imports between the two countries

Total exports to the US from Kenya in 2019 were valued at $667million where nearly 70 per cent ($453.73 million) were apparel items, making Kenya the number one apparel exporter in Sub-Saharan Africa to the US which has a market value of $343 billion for apparels.

Although Kenya may not feature as one of the top ten importers for the US market, the textile and apparel industry has the potential to alleviate the unemployment crisis in the country. It can also spur import and exports for both countries.

3. Direct flights

Since the two heads of state met, what has been agreed upon so far is direct cargo flights.

This will facilitate faster movement of goods and penetration into the US market and further ease logistics for importers from the US to Kenya.

This deal is espoused in the Amendment to the US-Kenya Air Transport Agreement that added the 7th freedom traffic rights for all cargo operations.

This amendment permits all-cargo airlines from the United States to fly between Kenya and a third nation without being required to stop first in the United States.

The aim is to fully open the Kenya air cargo services market to US carriers and liberalise the international civil aviation sector in Africa.

4. Regional trading route

Kenya is a member of the East African Community (EAC) with a population of approximately 145 million.

It is also a member of the Common Market for Eastern and Southern Africa (COMESA) with a population of approximately 400 million.

Exports and imports within member countries enjoy preferential tariff rates. EAC Member States have signed a Protocol to establish a common Customs Union.

These advantages provide the partner states with a unique framework for regional co-operation and integration and the US being a big market, this integrated body will be beneficial.

5. Opening up local industry to new investments

The announcement of Kenya’s trade deal with the US is a testament to the realisation of Kenya’s growing market diversification and offers a myriad of opportunities especially with regards to market penetration, job opportunities, technological advancements and innovation to spur economic growth.

A 2018 study by the Kenya Association of Manufacturers (KAM) and the Kenya Business Guide noted that Export Processing Zone (EPZ) based manufacturers employ 52,000 people.

The local sector directly employs about 21,000 people in formal sector and over 30,000 informally.

The two sub sectors cumulatively employ over 200,000 indirectly.  Further, 40,000 cotton farmers are currently engaged, for source of raw material.

Total annual turnover of the apparel sub-sector was estimated to be Sh38 billion while the textile sector is about Sh24 billion.

6. Building networks

Kenya Private Sector Alliance (KEPSA) has constituted a consortium that brings some of its active members in this space coupled with select industry experts.

The private sector is the real locus of trade and investment. The effective participation and involvement of the private sector in the trade agreement negotiation process and the building of effective public-private dialogue and partnerships will be imperative.

7. Developing bigger framework for trade engagements

Kenya is a trail blazer in the sub-Saharan Africa and the US is most likely to engage with other countries after Kenya hence it is important that Kenya does this well to set up a framework for engagement that may be duplicated by other countries.

KEPSA has also formed a similar working group to engage on the UK- Kenya trade pack following BREXIT.

At the end of the day, what would be most beneficial to both countries is an Free Trade Agreement that is coherent in policy for development; inclusive, adaptive and reflective of the socio-economic differences of its people.

8. WTO partnership agreement

Like Kenya, the United States of America is member of the World Trade Organization (WTO), and the Marrakesh Agreement establishing the WTO sets out rules governing trade among the WTO’s 154 members.

The United States has free trade agreements (FTAs) in effect with 20 countries, Kenya included.

These FTAs build on the foundation of the WTO agreement, with more comprehensive and stronger disciplines than the WTO agreement.

These bilateral agreements structure is likely to benefit both countries.

9. Labour structure plans

Given Kenya’s labour record, the United States will have to take a novel approach to labour negotiations, perhaps through technical assistance, a work plan, and phased-in obligations.

Negotiations would not only need to address the issue of low wages but child labor laws as well.

Kenya is one of only nine countries that have not ratified the UN Optional Protocol on the Sale of Children, Child Prostitution and Child Pornography, for instance.

Child labor is prevalent in Kenya’s agricultural industry and is used for other low-wage, low-skill tasks like scavenging.

Kenya does have laws and institutions to address child labor but faces challenges in enforcement due to funding and capacity.

To address this, the United States and Kenya could include a work program in the labor chapter of a bilateral FTA, which would include U.S. technical assistance to build Kenya’s capacity to address such issues.

10. Countering Chinese influence

China has been attempting to negotiate a free trade agreement with the entire EAC bloc since 2016.

While China has pursued stronger ties, Kenya has been working to diversify, and has been the only EAC country to oppose negotiating a trade agreement with China.

Kenya imports a lot from China and is China’s fifth largest export market in Africa. Yet Kenya ranks only 29th in Africa in terms of exports to China.

Given this imbalance, Kenya is eager to decrease their reliance on Chinese imports. Countering China’s growing influence in Africa has been a clear goal of the Trump administration through an inter-personal trade plan.

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