The EU-Kenya agreement to implement the Economic Partnership Agreement originally planned with the entire East African Community unties the Gordian knot between its supporters and opponents among African countries in the short term, but has long-term consequences beyond the divergence of tariffs towards the EU, writes Frederik Stender.
Frederik Stender is an economist and works on trade policy and regional economic integration issues at the German Development Institute (DIE).
The East African Community has a history dating back to 1967. Inter-state relations among its member countries have, however, traditionally been tense. Whether it is a matter of differences over the design and interpretation of product standards or openly expressed contradictions between national economic interests and regional obligations, the past has repeatedly provided occasions for trade disputes, especially between Kenya, Tanzania and Uganda.
Another source of conflict is the Economic Partnership Agreement with the European Union (EU) agreed in October 2014. After much back and forth, this is no longer to be implemented as a binding agreement for the entire region, but will initially follow the principle of “variable geometry.” This change of course highlights the hardened fronts over the pros and cons of the Economic Partnership Agreement among the countries of the East African Community and risks cooling the sense of community even further. Yet, this development could go beyond previously feared internal trench warfare over rules of origin and tariffs against third countries.
Ever since negotiations began in 2002, the Economic Partnership Agreements between the EU and the African, Caribbean and Pacific (ACP) countries have been a bone of contention. In order to reform formal trade relations between the EU and the ACP states in accordance with the rules of the World Trade Organization, a decades-long unilateral trade preference system is to be replaced by regional Economic Partnership Agreements. While the latter ensure continued duty-free access for ACP exports to the EU market, they also require gradual market opening for EU imports.
While some Economic Partnership Agreements entered into force years ago, others are in danger of being left hanging. African partner countries in particular are not very fond of the Economic Partnership Agreements. Despite the fact that agreements have been fully negotiated, the signing and ratification processes are stalling in many places. The East African Community is no exception.
Since the East African Community has already reached the integration level of a common market with (formally) common external tariffs, its statutes require a joint approach to trade agreements with third countries. The EU, too, has so far insisted on a closed implementation of the Economic Partnership Agreement with the entire region so as not to jeopardize the integration achieved. Burundi, Rwanda, South Sudan, Tanzania and Uganda, however, already have duty-free market access to the EU under the Everything but Arms initiative and thus have little interest in a reciprocal trade agreement. The situation is different for Kenya. The country is the only one in the East African Community to have significant trade relations with the EU. Because Kenya is economically more developed than its neighbours, however, it is threatened with the cancellation of its still transitionally promised completely duty-free access to the EU market. Kenya has therefore repeatedly sought to implement a bilateral Economic Partnership Agreement with the EU. Following a joint decision by the East African Community in February 2021, the EU also recently agreed to this bilateral approach.
For the EU, there are strategic reasons to deviate from the original regional approach. Kenya is not only an important exporter of agricultural products, above all flowers, but an emerging technology market. The United Kingdom has already concluded a bilateral trade agreement with Kenya, and the United States initiated corresponding negotiations under the Trump Administration. A bilateral Economic Partnership Agreement with Kenya would allow the EU to gain a trade foothold in East Africa as well.
The Economic Partnership Agreements are, however, not just trade agreements. On the contrary, both sides also link them to economic development in the ACP countries, among other things through more favourable access to industrial primary and intermediate products and thus the possibility of better integration into European value chains. The Economic Partnership Agreements also go hand in hand with (more) aid-for-trade and closer cooperation on product standards, compliance with which is one of the biggest obstacles to African exports to the EU. While these positive aspects could also be offset by increased competitive pressure, nevertheless, it is the country of the East African Community that would be further “promoted” or benefit from the positive aspects of the agreement, which is already economically the most developed in the region. Heterogeneity within the East African Community is thus likely to increase further.
The same applies to the potential for conflict. Already today, the countries of the East African Community begrudge each other economic success and tend all too readily toward a beggar-thy-neighbour trade policy. Regional non-tariff trade barriers serve in a recurring routine to give their own economies an advantage. In the future, therefore, a bilateral Economic Partnership Agreement between Kenya and the EU is likely to lead to more rather than fewer trade disputes.
Kenya’s bilateral agreement with the EU may temporarily resolve the conflict within the East African Community over the Economic Partnership Agreement, but it is too short-sighted. In the end, the change of course could fuel more potential for conflict than defuse it. In the long term, there is a danger that the economic differences in the East African Community will intensify. It is to be feared that this structural divergence will even exceed that of the tariffs towards the EU.