PUBLISHED ON August 25th, 2014

Kenyan exporters to EU to pay taxes from October

Kenyan exporters will from October start paying taxes on goods entering the European Union, until the ratification of the Economic Partnership Agreements — which could take months — is complete.

“The EU regulations require that any trade agreement made will have to be discussed at the Council of Ministers level and ratified by the EU parliament before it is implemented — and that takes time,” said Christophe De Vroey, the trade counsellor at the EU mission in Nairobi.

He would not say exactly how long it would take for the agreement between the EU and the East African Community to be ratified, but noted the process normally takes three or more months.

“It is the ratification that will allow Kenyan products to be added to the list of goods that are tax exempt,” he said.

Negotiations for the EPAs between the EAC and the EU started in 2007 with the initialling of the Framework EPA happening on November 27, 2007. However, the two blocs have failed to agree on a number of issues, causing the deadline to be postponed several times.

Last month in Kigali, the two sides yet again failed to agree on provisions for agricultural subsidies that farmers in the EU benefit from, duties, taxes on EAC exports and non-trade issues such as good governance and transparency in the Cotonou Partnership Agreement. The three remain pending out of 11 issues.

It was the reason the delegates resolved that the discussions be moved to the ministerial level for a political solution to be found.

The EPAs are trade and development agreements negotiated between EU and the African, Caribbean and Pacific (ACP) region.

With an EPA, exporters from Kenya will continue selling produce to the EU duty free, instead of being at a price disadvantage against rivals like Ethiopia and Colombia, which have signed the agreements.

Mr De Vroey said it was only Kenya in the list of top countries doing trade with the EU but not classified as a least developed country that was yet to sign the agreement. Least developed country status means other member states will continue benefiting from tax exemptions, even if the signing of the EPA is delayed.

Deadline lapse

Once the deadline lapses on October 1, Kenyan exports will fall under the GSP (Generalised System of Preferences) standard regime, meaning its flowers and other horticultural products will attract a tax of between five and eight per cent and fish products about 12 per cent.

Kenya exports flowers to the EU worth Ksh46.3 billion ($537 million) and vegetables worth more than Ksh26.5 billion ($307 million) annually. The EU takes about 40 per cent of Kenya’s fresh produce exports.

“If EAC fails to reach an agreement with the EU, Kenya will loose about Ksh12 billion ($140 million) per year. The figure could rise to Ksh18 billion ($209.3 million) if you factor in processed products entering the EU,” said Jane Ngige, the Kenya Flower Council chief executive.

It is not known when the two economic blocs will hold a ministerial meeting to thrash out the remaining contentious issues as had been recommended in the last EU-EAC meeting held in Kigali.

Mr De Vroey confirmed that EAC Secretary-General Richard Sezibera has written to the EU requesting a ministerial meeting but added that the 28-member trade bloc was yet to respond to the letter.

“Yes, the EAC has written to my commissioner requesting a ministerial meeting but we are yet to respond. We would have preferred that the outstanding issues be dealt with at the senior officers level and only move to the ministerial level for signature,” he added.

Mr De Vroey said the senior level is where all the technical officers are, adding that it would have been prudent to complete the agreement there.

He added that the EU had been flexible but had reached a point where it could not go any further, urging the EAC to sign the agreement.

“There has been flexibility on both sides since this is a very complex agreement and is not like selling a car where you agree on the price and that is all. However, there is a limit to flexibility. We have already concluded the agreement with the other trade blocs in Africa.”

The announcement will be a major blow to the economy in general, currently experiencing tough times due to a myriad factors ranging from poor performance of the agricultural sector, to a decline in tourism numbers due to rising insecurity.

Efforts to get a comment from Kenya’s Principal Secretary for Foreign Affairs, Karanja Kibicho, who was the head of the EAC negotiating team in Kigali, proved futile.

However, in an opinion piece published in the Daily Nation on August 14, Dr Kibicho said what remains now is to agree on a few points of concern, “basically to do with the phrasing of some sentences.”

He accused the EU of seeking to prevent the EAC from imposing duty and tax on its exports.

“This is a vital policy instrument used by all the World Trade Organisation countries for purposes of value addition to products, industrial development, development of infant industries, food security, environmental protection, currency stabilisation, and revenue collection,” Dr Kibicho said in the opinion piece.

Source URL: The East African

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