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'The opportunities are vast in a potential US-Kenya FTA'

'The opportunities are vast in a potential US-Kenya FTA'
Published date:
Thursday, 06 May 2021

Last year, the U.S. and Kenya announced the launch of free trade negotiations, the first of its kind between the U.S. and a sub-Saharan Africa country.

If successful, it would be the most significant trade development in the region since the enactment of the African Growth and Opportunity Act (AGOA) trade preference program in 2000.

To better understand the key issues surrounding FTA negotiations, the U.S. Chamber’s U.S.-Africa Business Center (USAfBC), in partnership with Covington and the American Chamber of Commerce Kenya (AmCham Kenya), released a new in-depth analysis, “U.S.-Kenya Trade Negotiations: Implications for the Future of the U.S.-Africa Trade Relationship" [see link to document below], examining the challenges and benefits of a potential (FTA) between the two countries.

“A trade agreement between the two countries would be the first of its kind between the U.S. and a sub-Saharan African country and would provide a steady framework for strengthening our relationships with economies across the continent by providing the necessary legal protections and enduring, reciprocal trade,” said Scott Eisner, Chamber senior vice president and USAfBC president .

What do businesses and stakeholders want to see from a U.S.-Kenya Free Trade Agreement? At a recent event, Kenyan and U.S. business leaders discussed the report’s findings.

Increased predictability

“A predictable long-term framework between the U.S. and Kenya will spur economic growth…. It will create jobs and increase the standard of living,” said Brenda Mbathi, CEO of GE East Africa and Board Chair, AmCham Kenya.

The report finds “hope that an FTA would increase transparency and long-term stability in the application of duties imposed on Kenyan products exported to the United States.” In addition, “an FTA could increase predictability in market access in Kenya for U.S. exporters and investors, including in the regulatory environment.”

Engaging small and medium enterprises

An FTA would also help small and medium enterprises (SMEs) in both countries and promote inclusive economic growth. SMEs “are the foundation of a successful economy,” said Charles Murito, Google’s Director of Government Affairs & Public Policy for Sub-Saharan Africa, and an “FTA can be a platform for [them] in our economy.”

The key is digital trade, “which can promote increased opportunities for participation by SMEs,” the reports states. “This was seen as a key way in which both SMEs and younger workers can participate more actively in the global economy while minimizing costs, especially given physical restrictions currently in place as a result of the COVID-19 pandemic.”

Facilitating digital trade

In the digital trade space, a key concern is how the two governments regulate it. In 2020, Kenya passed a digital services tax, while the U.S. has been a vocal opponent of countries imposing unilateral digital taxes.

“Predictability is absolutely essential,” said Raghav Prasad, Mastercard’s Division President for Sub Saharan Africa, and is “critical for the digital economy.”

Solving this creates vast opportunities in the region. “The US-Kenya FTA will serve as a blueprint for further U.S. agreements on the continent,” Prasad added. 

Expanding reciprocal access

A U.S.-Kenya FTA would help U.S. companies be more competitive in Kenya and in the entire African region.  

“Kenya is a long-standing, strategic U.S. partner in Africa.... A successful trade agreement between both countries would mark an important development in U.S. trade policy toward Africa in general, and sub-Saharan Africa in particular,” said Witney Schneidman, chair of Covington’s Africa Practice Group.

“U.S. executives expressed concern that U.S. firms were often disadvantaged in Africa as compared to European firms,” the report states.  They also described “ a potential U.S.-Kenya FTA as a positive development that could more broadly begin to level the playing field for U.S. firms seeking to do business in Africa.”

Tackling trade in GMOs

A key issue in negotiations around agricultural goods will revolve around the treatment of genetically modified organisms (GMOs). Kenya imposed a ban on them in 2012, but the report finds there would be significant benefits if a solution can be found. “While consumer expenditures on food in Kenya are among the highest in the world, 69 imports of both U.S. agricultural products and technology help to reduce both food prices as well as the overall amounts spent by Kenyan households on food,” the report states. “This would free up disposable income for other activities and have a positive impact on domestic demand in Kenya.”

Improving IP protections

Improving intellectual property protections and enforcement in Kenya ”would have an overall positive impact on the predictability of the Kenyan market,” the report states. “And would serve as a signal to potential investors that the general, overarching regulatory framework in Kenya is conducive and welcoming to investments.”

GE’s Mbathi agreed: “Investors want to invest in markets that are open to receive them.”

Enhancing transparency, capacity building, and enforcement

A U.S.-Kenya FTA would improve the overall business environment in Kenya. 

“Kenya needs to build capacity,” explained Erastus Mwencha, Chairman of the Board for TradeMark East Africa. This is an opportunity for Kenya to “join the global supply chain.” 

It would also position Kenya as a place for U.S. companies to set up manufacturing, Mbathi added. 

Preserving the benefits of AGOA

Kenya has taken advantage of the African Growth and Opportunity Act (AGOA) since it was passed in 2000. It had the second-highest AGOA utilization rate in 2018. Over 70% of Kenya’s U.S. exports are covered by AGOA, supporting thousands of workers and farmers.

“Kenyan decision-makers will want to maintain this access in trade negotiations with the United States,” the report finds. “At the same time, U.S. negotiators will seek to ensure that any agreement contains adequate reciprocal market access.”

While there are challenges to negotiation a U.S.-Kenya FTA, the business communities of both countries know how important and beneficial it would be. “There is a resounding message from Kenyan and U.S. business executives: We want to see an acceleration of a high-standard agreement,” said Maxwell Okello, CEO AmCham Kenya.

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