A worker arranges flowers for export. PHOTO | FILE | NATION MEDIA GROUP
What you need to know:
Implications
Since October 1, at least 87 per cent of Kenya’s exports to the EU — equivalent to Ksh98 billion ($1.06 billion) according to last year’s trade figures — have been attracting tariffs ranging from five to 22 per cent to enter Europe.
Among the key exports, cut flowers attract tariffs of 8.5 per cent, fish six per cent while fruit juices from Kenya now cost 11.7 per cent more on European shelves. Kenya is losing between Ksh400 million ($4.3 million) and Ksh1 billion ($10.9m) a month under a harsher trade regime.
Horticultural exports from Kenya will from next year enjoy duty-free access to the European Union market after the European Parliament and the European Council accepted a proposal to reinstate the East African country to the list of privileged countries under the Market Access Regulation.
The decision will be a relief for exporters whose exports to the European market have been subjected to import duties of between 5 per cent and 8.5 per cent since October this year, following delays in finalising an Economic Partnership Agreement (EPA) between the EU and the East African Community member states.
The two trade blocs finally reached an agreement on October 16, more than two weeks after the stipulated deadline.
“This decision is a relief for Kenya’s floriculture sector and for all operators and businesses involved in the floriculture trade in Kenya in view of the approaching peak sale season — Valentine’s Day,” Kenya Flower Council chief executive Jane Ngige and Union Fleurs (an international flower trade association) secretary general Sylvie Mamias said in a joint statement.
All that remains to be done is the formal publication in the EU official journal that will advise Customs in the EU and operators that the duty-free status of Kenya flower and floriculture imports to the EU has been reinstated.
“We expect this final formal step to be completed before December 31, meaning that Kenya can start the New Year with renewed duty-free access to the EU market,” the Union Fleurs and the Kenya Flower Council said in the statement.
The chairman of the Kenya Flower Council, Richard Fox, said publication in the EU official journal is likely to take place between December 24 and 31.
In the meantime, all exports to EU of cut flowers and other floriculture products from Kenya will continue to fall under GSP preferential duties, Mr Fox said. Investors in the horticulture sector have been waiting for the European Council and the European Union to give them greenights for the implementation of the agreement.
The deal will save the country from incurring losses of about $1.12 million a year in export duties for cut flowers and horticultural produce sent into Europe.
Kenya exports flowers to the EU worth Ksh46.3 billion ($537 million) and vegetables worth more than Ksh26.5 billion ($307 million) annually, making the horticultural sector one of the most important contributors of foreign exchange. The EU takes about 40 per cent of Kenya’s fresh produce exports, making it one of the country’s top export market.
The horticulture industry has also created job opportunities for close to 90,000 Kenyans employed directly and a further 1.5 million people employed in the ancillary service sectors. To keep Kenya’s flowers competitive in the European market and safeguard jobs and the heavy capital investment, Ms Ngige said the additional costs associated with the duties are now absorbed by the floriculture sector.
Despite the change of trade regime, from the duty-free regime of the Market Access Regulation (MAR) to the Generalised System of Preferences (GSP) regime, Kenyan exporters still make losses as their products have become expensive than those of their competitors in India, Ethiopia and Colombia, among other countries. This is because the regime attracts taxes on products imported into the EU.
Of the five East African countries, Kenya has suffered the most, since its counterparts are categorised as least developed countries, meaning their agricultural exports still enjoy duty-free access with or without the implementation of the Economic Partnership Agreement.
The Union Fleurs and the Kenya Flower Council hope that the spirit of co-operation within and between the EU and Kenya and its EAC partner will be maintained to achieve finalisation of the EPA ratification process in a timely manner before 2016.
Mr Fox said once the duty-free status is reinstated, shipments will have to be supported by a EUR1 certificate of origin to benefit from duty-free Customs clearance into the EU.
Negotiations on the EPA between the EAC and EU started in 2007 but the two blocs failed to agree, prompting the postponement of the deadline several times. The EPAs are trade and development agreements negotiated between EU and African, Caribbean and Pacific countries, aimed at strengthening integration.
EPAs were set up to create a free trade area between the EU and the African Caribbean and pacific group of states and were supposed to take effect in 2008, but the negotiations are not yet complete. Europe’s bid to insulate itself against emerging economies like India and China has been cited as the biggest point frustrating the negotiations.
Negotiators said the delay in concluding the talks has been caused by a dispute over a clause on export tax and the inclusion of a most favoured nation clause.
The five EAC members signed an interim trade deal with Europe in 2007 to guarantee continued duty-free and quota-free access to the EU market.
