TRALAC - Trade Law Centre

Kenya warned of trade ban risk in reforms row with US

Thursday, 29 October 2009

Source: Business Daily (Kenya)

Kenya risks being thrown out of a list of countries that will next year trade with the US on concessionary terms contained in the African Growth and Opportunity Act (Agoa), analysts warned, citing a raging diplomatic row between the two countries over the pace of reforms.

Review of countries that qualify to benefit from Agoa as provided for in the pact is going on and exporters are worried that persistent friction over the pace of political reforms may draw the Obama administration’s attention to Kenya’s presence in the list posing the risk of it being struck out.

The Agoa Act authorises the US president to designate on an annual basis countries eligible to benefit from the pact.

It says countries will qualify if they are identified as having established, or are making continual progress toward establishing market-based economies; the rule of law and political pluralism and are eliminating barriers to US trade and investment.

It further says that such eligibility would be determined on the basis of protection of intellectual property, efforts to combat corruption, policies to reduce poverty, increasing availability of healthcare and educational opportunities, protection of human rights and worker rights and elimination of certain child labour practices.

The office of the US Trade Representative (USTR) is at an advanced stage with the paperwork for the annual review of countries that are eligible to benefit from Agoa in 2010 and is expected to present a report to President Obama for action before the end of the year.

The deadline for public submissions from eligible countries expired last week and is undergoing consideration.

“The sub-committee will consider the submissions in its recommendations to the president,” the USTR said in a statement.

Unfortunately for Kenya, the review is being done against the backdrop of a deepening diplomatic row with the US over the pace of political and institutional reforms.

The US State Department early this week announced, through its undersecretary for African Affairs, Johnnie Carson, that it had barred an un-named influential Kenya government official from travelling to the country over what it termed as the official’s opposition to reforms.

Some Kenyan traders with interest in the US market yesterday expressed concern that the diplomatic spat over the pace of reforms could spill over into the arena of trade and investment under Agoa.

“The confrontation places trade and investment opportunities at risk because America may choose not to deal with Kenyan traders or investors under the initiative until the reforms are in place,” Rudolf Isinga, an official of Protex Limited that operates within the Export Processing Zone (EPZ) in Athi River, said.

Statistics show that returns from the Agoa initiative accounted for the bulk of Kenya’s total trade with the US worth $300 million in 2008.

Kenyan products, notably apparel and agricultural produce are big beneficiaries of the Agoa arrangement that removes import duty on all eligible African products and grants them preferential market access upon compliance with set Rules of Origin (ROO).

Kenya exported textile and apparel worth $250 million to the US in 2007, including agricultural produce worth $52 million.

Economic Survey 2009 indicates that direct employment in the garment and apparel sector, which is heavily supported by the Agoa initiative, stood at 25,776.

Though Kenya is listed among countries that are eligible to benefit from Agoa, the US government reserves the right to review the list of countries benefiting from it annually.

The Bush administration, for instance, disqualified a number of African states from the Agoa deal citing a wide range of reasons including human rights abuse, pace of democratisation, and links to terrorists or rogue states.

Recent diplomatic row between Kenya and the US over the pace of reforms is causing anxiety among businesspeople that the Obama administration may use its powers to lock out Kenya from the initiative that has helped boost Kenya’s trade profile with the US since its launch in 2000.

Barely a month earlier the US had sent letters to 15 prominent Kenyans warning them of possible visa bans, triggering protests from President Kibaki to his US counterpart.

On Thursday, Justice and Constitutional Affairs minister Mutula Kilonzo accused the US government of over-stepping its mandate in agitating for reforms in Kenya.

“We may be wrong but they may be over stepping their mandate” he told journalists in Nairobi, hours after US envoy in Kenya Michael Renneberger warned that the US will not relent in its pursuit of the reform agenda.

Records of Agoa decisions that US Presidents have made since 2000 show that emphasis was on the rule of law and political pluralism, protection of human rights and workers’ rights and the fight against corruption.

Similar benchmarks were applicable last year when the decision was made to lock out eight countries including Zimbabwe, Somalia, Sudan, Cote d’Ivoire, Equitorial Guinea, Eriteria, Mauritania and the Central African Republic, from the Agoa initiative in 2009.

“If the President determines that a beneficiary sub-Saharan country is not making continual progress in meeting the eligibility requirements, he must terminate the designation of that country as a beneficiary,” the Agoa Act states.

Mr Isinga said the US government has proved that it is serious about policy issues governing trade with it. US officials have even made factory visits to assess the plight of workers.”

Some analysts were however positive that Kenya will be in the list of countries that qualify to trade under the Agoa next year despite the diplomatic row.

“President Obama is unlikely to condemn all Kenyans by denying them the opportunity to trade with the US under Agoa. The US government has clearly indicated that it will deal with individuals seen to be blocking reforms within government,” Adams Oloo, a political scientist at the University of Nairobi, said.

“Several reform initiatives have been set rolling and I don’t expect the US to hit Kenya to the extent of removing it from Agoa,” he said.

The Fresh Producers Exporters Association of Kenya (FPEAK) CEO Stephen Mbithi said it would be “unfortunate” should America opt to eliminate Kenya from the Agoa eligibility list for 2010.

“Most of those involved in trade with the US are in the private sector and have fully complied with the social reform requirement and should not be punished on behalf of politicians. A blanket purge would punish the wrong people,” he said.

Dennis Ochwada, chairman of the Cotton Development Authority (CDA) said the Agoa initiative has been a critical element of the progress so far made in the textile industry and should be continued,”

Agoa pact was enacted under the Bill Clinton administration to supplement then existing US trade arrangements with developing nations and sought to expand duty-free benefits that were available under the Generalised System of Preferences (GSP).

Though the Act originally covered the eight-year period from October 2000 to September 2008, amendments signed into law by the Bush administration in July 2004 extended it to 2015 — allowing the beneficiaries more time to engage in business.

Statistics show that duty-free access to the US market under the combined Agoa/GSP programme covers about 7,000 product lines, in addition to about 1,800 product tariff lines that were added to the GSP system when the Agoa legislation was enacted.

The products lines include agricultural produce, wine, footwear, selected motor vehicle components, chemicals, steel and clothes among others.

Kenya’s hopes of building on its trade profile with the US under Agoa suffered a set back in June when plans to inaugurate direct flights between the two markets by Delta Airlines, was shelved on the advice of the US government on concerns over unspecified security issues.

In August, Kenya played host to the 8th Agoa forum where most African leaders including President Kibaki called for a permanent arrangement in place of the current annual system.



“ Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of Kenya's bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.


Other regularly updated trade statistics on AGOA.info include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.