Kenya Must Be Cautious on Trade Deal With the U.S.


News coming out of Washington and Nairobi indicates that Kenya and the United States are contemplating a bilateral, free trade deal. Details are scanty, but what is not in dispute is the resolve of the parties to put some kind of deal on the table.

The benefits for both parties are tempting. A US-Kenya bilateral trade agreement would open an entry point into East Africa for American products. For Nairobi it is an imperative because of Kenya's changing economic profile. As the only lower middle-income economy in East Africa, Kenya is progressively slipping out of the band that would allow it access to international markets under existing preferential trade regimes with the West.

Often seen as a badge of honour by politicians in most developing countries, middle income status comes with its own penalties. For instance, by falling into that abstract classification that could mean daily spending of anywhere between $3 and $20 per individual, Kenya trades away benefits such as access to essential life-saving medicines at lower prices. In that context, a bilateral agreement could lock in some of the benefits that would be lost under a multilateral arrangement.

Kenya's partners in the East African Community are cautious about the development for good reason. Nairobi's move could signal an emerging drift towards unilateralism, that could further complicate regional economic integration. Any tariff concessions that Kenya gets from the US in return for similar benefits, will not extend to her neighbours who bear the risk ingress by US products that can use the agreement to bypass the EAC common external tariff regime. That can potentially upset regional protocols and force neighbours to introduce discriminative tariffs against Kenyan goods that they suspect of being a Trojan for US products.

Section 37 of the East African Community Customs Union Protocol requires that a partner state informs the EAC of its intentions before such a deal is signed. And it is indeed possible that Kenya will at some point inform her partners before inking any deal. But that could be too little too late.

Given the economic disparity across EAC member states, it is difficult to envisage how Kenya can negotiate a deal that satisfies everybody.

In the circumstances, both Kenya and her partners in the EAC, have a lot to learn from the stalled Economic Partnership Agreement. Kenya with a bigger, export oriented manufacturing industry sees more opportunity from EPA where her less industrialised neighbours see threats. In the instant case, Kenya's direct air links with the US, open up a vista of opportunities that can best be leveraged with a specific trade agreement.

On the other hand, the current dilemma demonstrates the limitations of regional protocols. For instance, at what point do regional commitments become an impediment to the opportunities of a member?

The future of the EAC and its ambitions may as well hang on how the regions answers that question. It is going to call for pragmatism and a spirit of give and take. One option may be to consider omnibus external trade agreements with built-in biases that favour the weaker partners.

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