Inside the burning issues as Kenya-US trade talks resume

Inside the burning issues as Kenya-US trade talks resume
Published date:
Thursday, 05 May 2022

Kenyan trade officials and their American counterparts resumed talks on a proposed free trade pact that holds the potential of boosting exports to the world’s largest market, but one that critics fear could expose local firms up to unfair competition from American companies.

US trade officials jetted into the country on Sunday to iron out pending concerns by President Joe Biden’s administration that have delayed the deal. High on the worries of American negotiators are issues such as intellectual property practices, corruption in local tendering, and the prohibition of genetically modified organisms (GMO).

Ahead of the talks, an influential US House of Representatives committee head backed the fast-tracking of the talks, piling pressure on the Biden administration to conclude the negotiations.

The talks were initiated by Biden’s predecessor Donald Trump. They have however faced delays after the Biden administration sought more time to scrutinise the negotiated pact.

But pressure is from US lawmakers to conclude the negotiations and pave the way for business and investments.

“We must prioritise trade with Africa. A comprehensive free trade agreement with Kenya that includes market access provisions will be a necessary component,” Richard Neal of the House of Representatives was quoted saying by US press in late March in opening remarks during a House Ways & Means Committee hearing in which the panel probed US Trade Representative Katherine Tai on the Biden administration’s 2022 trade policy agenda.

“Kenya has shown a willingness to embark on a free trade agreement in the negotiations with the United States,” he said. “We should embrace it.”

Ms Tai consequently said the latest Kenya talks will lay ground for a decision on the fate of the deal.

“We’ve exchanged a set of ideas back and forth, and I will be happy to report back -- and have my team report back to yours -- on that trip,” she was quoted saying recently.

Kenya Trade Cabinet secretary Betty Maina confirmed the talks started in earnest on Tuesday.

Kenya wants to do a deal with Washington before the expiry of the Africa Growth and Opportunity Act (Agoa), which allows sub-Saharan Africa states to export thousands of products to the US without tariffs or quotas until 2025.

Nairobi has remained upbeat on the future of the talks even as the Biden administration maintained that the objectives of the bilateral pact should be recast to recognise Biden’s agenda with some of the aims of the negotiations set by the Trump administration likely to be dropped.

Protect American firms

The new administration had for instance said it wants to make sure that the objectives of the negotiations are consistent with Biden’s $4 trillion revamp of the American economy that focuses on a muscular industrial policy with an eye on fighting climate change.

His policy mix includes increasing corporate taxes to fund innovation and buy American products to expand jobs; tax incentives and penalties to encourage US firms to keep and create jobs in the US as well as $2 trillion investment in clean energy.

Biden’s plans signal that the US will be keen to protect American firms in the quest to shore up manufacturing and seek a larger share of the global trade currently in the hands of China while pushing for bilateral trade deals.

Amid Biden’s new priorities, a recent report pointed out the barriers US firms face in trading or doing business in Kenya giving a glimpse of the burning issues at hand.

GMO push

The US government, for instance, slammed Kenya for its failure to approve imported GMO foods and crops saying the measure is restricting US exports to Kenya.

The United States Trade Representative Office (USTR) said in its annual report that approval by Kenyan authorities could boost agricultural purchases from the US by Kenya.

US is the world’s biggest producer of GMO crops and its farmers have been lobbying hard for end of restrictions before the deal is inked.

But since November 2012 Kenya has been reluctant to approve the importation or planting of GMO food crops, amid an ongoing debate about their safety despite several advantages such as resistance to drought, pests, and higher yields.

The move has restricted the sales of new products from US companies such as DowDuPont Inc, Bayer AG, Monsanto, and Syngenta AG which have been seeking new markets like Kenya.

“Kenya’s ban has blocked both US Government food aid and US agricultural exports derived from agricultural biotechnology,” the USTR said in its annual trade barriers list published in late March.

Corruption hurdles

The US also decried graft in government tenders in Kenya, saying it locked out qualified American firms from undertaking projects. The US is keen on transparency in public procurement ahead of a new trade deal.

“US firms have had very limited success bidding on Kenyan government tenders. There are widespread reports that corruption often influences the outcome of public tenders, and many of these tenders are challenged in the courts. Foreign firms, some without proven track records, have won government contracts when partnered with well-connected Kenyan firms or individuals,” said the USTR.

The National Treasury has tried to insulate public tendering from graft. Early this year, it announced new tools in the Integrated Financial Management System (Ifmis) to enable suppliers lodge and monitor claims for tender payments remotely, removing human interaction with State officials who have in the past been on the spot for demanding bribes to facilitate payments.

The upgraded features, which come into force on February 14, allow suppliers to receive purchase orders generated from Ifmis via email as well as submit invoices and track their payment status through a government portal.

But according to the US report, American companies have expressed concerns about Ifmis “due to insufficient connectivity and technical capacity in county government offices, apathy from county government officials, central control shutdowns, and security gaps that render the system vulnerable to manipulation and hacking.

Customs barriers

US firms also slammed what they see as persisting trade barriers when they import into the country.

They, in the report, raised concerns about the length of time required for Kenyan Customs to release shipments, as well as use of excessive formalities.

“Many US companies have commented that Kenya’s one stop customs clearance system does not operate as intended, and that pre-arrival processing of electronic documents is ineffective. Other US companies have raised concerns about the inconsistent application of classification and valuation decisions, as well as unnecessary transit inspections,” the report said.

“US industry has also expressed frustration with inadequate de minimis (too small to be meaningful or taken into consideration) relief from customs duties and taxes for express shipments. Kenya’s customs law appears to reward customs officers for aiding in the seizure of goods up to the value of the imports that have been seized.”

Kenya is currently the US 96th largest goods trading partner, according to the USTR report.

The volume of trade between the US and Kenya grew by 36 percent to Sh143.82 billion last year compared to Sh105.69 billion in 2020.

The US is the largest export destination of Kenya’s apparel, accounting for over 90 percent of garment exports every year. Of the total US imports from Kenya, nearly 70 percent is apparel, making the sector the single largest stakeholder in the proposed Free Trade Agreement.

View related news articles

Kenya businesses 'want continued duty-free access'

The Biden administration has been clear that none of its trade negotiations cover tariffs. That includes talks with the U.K., the EU and the Indo-Pacific region, as well as the Strategic Trade and Investment Partnership talks with Kenya. In Kenya’s case, the country already has duty-free access to the United States for most of its goods under the African Growth and Opportunity Act. But the Biden administration has not said yet...

26 September 2022

Concerns expressed that Kenya deal with US could hurt regional trade

The pursuit of a new trade pact between Washington and Kenya is eliciting old fears on whether it could hurt adherence to obligations under the East African Community, and hence continental ambitions for more commerce. The US has confirmed it is willing to restart negotiations on a future trade pact with Nairobi once a substantive government is formed by President William Ruto. And although Washington says any trade agreements in Africa will...

24 September 2022

US concerns with doing business with Kenya

The United States of America has expressed interest in resuming trade with the East African nation of Kenya. The resumption of trade between both nations is a welcomed development according to both parties, assuming the interest of both players is protected.  Tension surmounting between these two nations results from the potential tax that could be imposed on their businesses should they commence trade with each other.  The US has...

24 September 2022

US overtakes Uganda to become the largest market for Kenyan goods

The United States has overtaken Uganda to become the largest market for Kenyan goods, according to a report by Business Daily. Citing official data, the publication reported that Kenya’s exports to the US grew by 47 percent to Sh38.8 billion in the first half of the year, ending Uganda’s 10-year dominance as the leading export destination for Kenya-made goods. In the period under review, Ugandan consumers bought Sh36.2 billion worth of...

22 September 2022

Kenya seeks a temporary pact with the US ahead of full FTA

Kenya is currently seeking a placeholder trade partnership with the United States as negotiations for a fully-fledged free trade agreement (FTA) continue between the two countries. Outgoing Trade Cabinet Secretary Betty Maina said she expects the new administration under President William Ruto to continue engagements with the US. “What we are currently in discussions over is the development of a strategic trade and investment partnership...

13 September 2022

US seeks public views on new trade deal with Kenya [incl. file]

President Joe Biden’s administration is seeking views from American and Kenyan firms on the proposed fresh free trade window as it lays grounds for a new pact. The call follows fresh trade talks Washington opened with Nairobi in July. The United States Trade Representative Office (USTR), which has been spearheading the talks, said comments received from interested parties will help the USTR as it develops negotiating objectives and...

15 August 2022

AGOA's 'expiry clause has limited Kenya's ability to attract long-term investment', MIT Secretary says

Kenya has struggled to attract long-term, capital-intensive investments under the more than two decades-Growth and Opportunity Act (Agoa) deal with the US largely because of the pact’s expiry clause, the Trade minister has said. Betty Maina, the Industrialization and Trade secretary, says big-ticket investors have not been keen on setting up factories for duty- and mostly quota-free exports into the expansive US market, limiting the product...

14 August 2022

US doesn't rule out more comprehensive trade negotiations with Kenya

The United States has not ruled out more comprehensive trade negotiations with Kenya after launching a strategic trade and investment partnership with the African country on Thursday, Deputy U.S. Trade Representative Sarah Bianchi told Reuters. Bianchi said U.S. trade officials viewed the agreement with Kenya as a potential model for other countries. Officials would focus in coming months on hammering out high-standard agreements in areas...

15 July 2022

House Ways and Means Chairman Neal applauds launch of US-Kenya partnership agreement negotiations

Today, House Ways and Means Committee Chairman Richard E. Neal (D-MA) applauded the launch of the United States-Kenya Strategic Trade and Investment Partnership, “Today’s announcement that the United States will be furthering our partnership with a key trading partner, Kenya, is a welcome advancement in our trade relationship, and I thank USTR Ambassador Tai for her leadership in launching this initiative. “Kenya is a recognized...

15 July 2022

United States and Kenya announce the launch of US-Kenya strategic trade and investment partnership

During a virtual meeting today, United States Trade Representative, Katherine Tai, and Kenya's Ministry of Industrialization, Trade and Enterprise Development Cabinet Secretary, Betty Maina, launched the United States-Kenya Strategic Trade and Investment Partnership (STIP).   Building on their June 13, 2022 meeting in Geneva, Ambassador Tai and Cabinet Secretary Maina agreed that their governments will pursue enhanced engagement leading...

14 July 2022

US starts resetting trade ties with Kenya to reflect Biden priorities

The US government on Monday started reshaping trade deals with Kenya to reflect the priorities of the Joe Biden administration, American officials said. The US and Kenya agreed to discuss an “ambitious” trade arrangement with “high-standard commitments” in key areas including agriculture, digital trade and climate change, the Office of the United States Trade Representative (USTR) announced on Monday. The USTR stated this after the...

15 June 2022