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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.

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