2011/2012 Yearbook Trade and Commerce

Trade agreements

Kenya is a signatory to bilateral, regional and international trade agreements that aim to facilitate and increase trade. The agreements provide certain preferential treatment for Kenyan businesses.

Regional trade agreements

Kenya is a member of the East African Community (EAC) and Comesa (Common Market for East and Southern Africa) trade agreements in Africa. Membership entails extending preferential tariffs to goods imported from member states subject to agreed conditions (the Rules of Origin). Goods originating in Kenya also enter into the other member countries at preferential rates. This provides an incentive to import from or export to countries in the regional trading bloc.

East African Community

The East African Community was established in 1999. The EAC partner states comprise Kenya, Uganda Tanzania, Rwanda and Burundi. The Treaty stipulates that the East African Customs Union and a Common Market be established as part of efforts for regional integration. The East African Common Market Protocol came into force in July 2010, which allows free movement of goods across borders. The states have a common external tariff. The EAC countries are Kenya’s largest buyers, led by Uganda and Tanzania.

EAC Customs Union

The EAC Customs Union was established by Protocol in 2004. Its objectives are to further liberalise intra-regional trade in goods on the basis of mutually beneficial trade arrangements among the partner states, promote efficiency in production, enhance domestic, cross-border and foreign investment and promote economic development and diversification of industrialisation in the Community. The features of the Customs Union include common import duty rates applied to third-party goods (Common External Tariff), a common set of customs rules and procedures including documentation, a common trade policy that guides the trading relationships with countries or trading blocs outside the Customs Union and duty free and quota-free movement of tradable goods within the constituent customs territories.

The Customs Union is being implemented over a transitional period and has adopted the principle of asymmetry in the phasing out of internal tariffs, in order to provide firms located in the other four member states with an adjustment period. Non-tariff barriers have been eliminated. Policies relating to trade between the partner states and other countries have been harmonised and a Common External Tariff has been adopted. This will facilitate formation of one large single market and investment area. A single customs territory will enable the member countries to enjoy economies of scale with a view to bringing about faster economic development.

EAC Common Market

The Protocol on the Establishment of the East African Community (EAC) Common Market entered into force on July 1, 2010, following ratification by all the five partner states: Burundi, Kenya, Rwanda, Tanzania and Uganda. The Protocol was signed by the Heads of States on November 20, 2009, coinciding with the 10th Anniversary celebrations of the revived Community. The establishment of the East African Community Common Market is in line with the provisions of the EAC Treaty. It provides for “Four Freedoms”, namely the free movement of goods, labour, services, and capital; which will significantly boost trade and investments and make the region more productive and prosperous. The Common Market represents the second stage of the regional integration process (as defined by the Treaty for the Establishment of the East African Community), following the Customs Union, which became fullyfledged in January 2010. The Common Market Protocol is a significant step towards the achievement of the next milestones in the integration process, which is the Monetary Union and the EAC Political Federation.

General provisions

There are general provisions in the Protocol that touch on: Institutional Framework needed to operationalise the East African Community Common Market; Approximation and Harmonisation of Policies, Laws and Systems; Safeguard Measures; Measures to address imbalances; Monitoring and Evaluation; Regulations, Directives and Decisions; Annexes; Amendment of the Protocol; Settlement of Disputes; Entry into Force; and Depository and Registration.

Harmonisation of Standards

There have been controversies about certification standards of goods from the different member countries, with Tanzania and Uganda refusing to recognise Kenyan standards as certified by the kenya Bureau of Standard (Kebs). This led to the creation of the Standards Technical Management Committee (STMC), which is responsible for developing and harmonising East African Standards (denoted as EAS). Harmonization of standards is an essential requirement towards greater economic integration in the Community. Harmonisation of standards and technical regulations will eliminate technical barriers to trade and encourage a freer flow of goods and services within the community. For details, contact the EAC Desk, Ministry of Trade and Industry, Telposta Towers, which will provide you with more information. You could also visit the EAC website: www.eac.int

Common Market for Eastern and Southern Africa (COMESA)

Comesa was formed in 1994 to replace the Preferential Trade Area. Comesa has 21-member states with a population of over 385 million, making it a major market for both internal and external trade. The main objective of cooperation in trade, customs and monetary affairs is to achieve a fully integrated, internationally competitive and unified single economic space within which goods, services, capital and labour move freely across national borders. Kenyan goods enter the member countries at preferential tariffs while similar treatment is given to goods imported from Comesa member states. Comesa seeks to create a fully integrated region where goods, services, capital, labour and persons move freely by removing all physical, technical, fiscal and monetary barriers to intra-regional trade and commercial exchanges. The current members of the Comesa trading bloc are Angola, Burundi, Comoros, Djibouti, DR Congo, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Swaziland, Seychelles, Uganda, Zambia and Zimbabwe. For more information on Comesa, visit www.comesa.int or contact the COMESA desk, Ministry of Trade and Industry, Telposta Towers, Nairobi.

Non-Reciprocal Market Access Arrangements

These are trade preferences that may not be mutually applicable, such as the preferences extended to Kenya under the African Growth and Opportunity Act (AGOA) of the USA, the Africa, Caribbean and Pacific/European Union (ACP/EU) Cotonou Partnership Agreement and the Generalized System of Preferences (GSP). Kenyan goods enter the USA, EU and other developed countries at lower tariffs, making them more attractive.

ACP/EU Cotonou Partnership Agreement

The European Union is Kenya’s main trading partner outside of Africa. The main players are the United Kingdom, the Netherlands, Germany and France. According to the Economic Survey, the EU accounted for 26.45 per cent of Kenya’s exports, with a value of nearly Kshs57 billion ($670.6 million).  The ACP/EU Cotonou Partnership Agreement is a trade, aid and political agreement signed in Cotonou, Benin, between 77 African, Caribbean and Pacific (ACP) countries and the European Union. The partnership’s main objectives are sustainable development of the ACP States, their smooth and gradual integration into the world market, and eradication of poverty.

 Generalised System of Preferences (GSP)

This is a non-reciprocal system of providing some countries with preferential treatment for their goods when exporting to developed countries. The GSP programme was negotiated under the auspices of the United Nations Conference on Trade and Development (UNCTAD) and its objectives are to increase the export earnings of countries receiving preferential treatment, promote their industrialisation and accelerate their rate of economic growth. Kenya has been granted this preferential treatment by OECD (Organisation for Economic Cooperation and Development) countries such as Canada, USA, Australia, Switzerland, Norway, Sweden, Finland, Austria and Japan.

Bilateral Trade Agreements

Kenya has bilateral trade agreements with a number of other countries, such as Argentina, Bangladesh, Bulgaria, China, the Czech Republic, India, Iran, Lesotho, Nigeria, Pakistan, Poland, Romania, the Republic of Korea, Thailand and Russia. Under these agreements, Kenya and its bilateral partners accord each other the MFN (Most Favoured Nation) treatment in all matters with respect to their mutual trade relations. These agreements have been used as instruments for promoting trade and improving economic relations between Kenya and these countries.

African Growth And Opportunity Act (AGOA)

Bilateral trade between Kenya and the US is largely governed by AGOA. The African Growth and Opportunity Act promotes increased trade and economic cooperation between the United States and eligible sub-Saharan countries. AGOA promotes economic development and reform in sub-Saharan Africa, moving across a wide range of industries, granting tangible benefits to entrepreneurs, farmers and families. It has increased access and opportunities for US investors and businesses in sub-Saharan Africa. Kenya was the first country to be designated an AGOA beneficiary country in the sub-Saharan Africa region. The AGOA initiative has revitalised the textiles and apparel industry, which has seen substantial growth in recent years. Export flows of apparel to the USA grew 14 per cent from Kshs13.8 billion ($162.4 million) in 2007 to stand at Kshs15.7 billion ($184.7 million) in the year 2008.

This sector currently employs approximately 40,000 people. Some garment enterprises have diversified to other markets other than the USA such as Europe, Canada, Russia, UAE, Hong Kong, Panama and Zimbabwe, among others. In 2008, these new markets were destinations of Kshs177 million ($2.1 million) worth of goods compared to Sh33million (388,235) in 2007. Under AGOA, Kenya has increased employment (about 190,000 jobs created), provided extra income for urban and rural workers, and boosted its economy. At the 2011 forum, held in May in Lusaka, the sub-Saharan African countries called for the extension of Agoa beyond 2015, with Zambia, South Africa and Kenya as the strongest advocates.

Kenya-US Trade Under AGOA

The value of exported apparel increased from Kshs16.2 billion ($190.5 million) in 2010 to Kshs18.8 billion ($220.9 million) in 2011. Direct employment in this sub-sector recovered from a declining trend to record a 7.4 per cent growth from 24,114 in 2010 to 25,904 in 2011. Kenya’s exports to the U.S. are relatively lower-priced goods and commodities such as tea, textiles, apparels, pyrethrum, handcrafts, and processed nuts. Since the enactment of AGOA, textiles and apparels have dominated the composition of Kenya’s exports to the U.S. and constituted about 76 per cent of the total exports in 2007.

U.S. exports to Kenya have generally been manufactured high-value goods such as aircraft parts, machinery, electronic equipment, pharmaceuticals, organic chemicals, plastics, and fertilisers. To be eligible to manufacture under AGOA, one is required to contact the Ministry of Trade and Industry or the nearest District Industrial Development Office. Details of the products which are intended for export to the USA are provided. For more information on AGOA and the products eligible for preferential treatment under this scheme, visit the AGOA desk in the Department of Industry at the Ministry of Trade and Industry. The AGOA website, www.agoa.gov, is also useful.

World Trade Organisation (WTO)

Kenya is among the founder members of WTO, which came into being in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT) and is the only international organisation dealing with the global rules of trade between nations. As a member, Kenya is signatory to all WTO agreements including the General Agreement on Tariffs and Trade (GATT), the Agreement on Agriculture (AOA), the General Agreement on Trade in Services (GATS), the Agreement on Textiles and Clothing (ATC) and the Agreement on Trade- Related Intellectual Property Rights (TRIPS). The WTO has nearly 150 members, accounting for over 97 per cent of world trade. Around 30 other countries are negotiating membership.

The WTO’s main objective is to help trade flow smoothly, freely, fairly and predictably. The WTO Division has a number of professional staff both within Kenya and at the Kenyan mission in Geneva, which deals exclusively with WTO matters. A number of private-sector organisations have recently emerged to present and articulate the views of the private sector, and have been active on WTO trade-related matters. These include labour unions, trade associations, the Kenya National Chamber of Commerce and Industry (KNCCI), and a number of producer associations. Kenya established the Permanent Inter-Ministerial Committee (PIMC) in May 1995 to advise the government on all matters pertaining to the WTO. The PIMC was renamed the National Committee on WTO (NCWTO). The Attorney General, the Office of the President and the ministries of Trade and Industry, Finance, Planning and National Development, Health, Agriculture, Foreign Affairs, Labour and Human Resources, Environment and Natural Resources, Information and Communications, and Transport all participate actively in the NCWTO.

A number of state corporations and parastatals such as the Kenya Revenue Authority (KRA), the Kenya Bureau of Standards (KEBS), the Kenya Plant Health Inspectorate Service (KEPHIS) and the Kenya Sugar Board (KSB) are members of the NCWTO. Others include the Central Bank of Kenya (CBK), the Export Promotion Council (EPC), the National Environment Management Authority (NEMA), the Kenya Industrial Property Institute (KIPI) and the Capital Markets Authority (CMA). There are around 45 other members of the NCWTO representing different umbrella organisations and institutions. Around 25 communitybased organisations are members of the NCWTO.

The World Trade Organization website, www.wto.org, and the WTO Desk at the Ministry of Trade and Industry, Telposta Towers, Nairobi,has more information on the WTO-Kenya relationships and benefits.