Update on EPA negotiations between EAC and EU

As earlier reported the latest round of technical negotiations between the European Union and East Africa Community on the Economic Partnership Agreement (EPA) in Kigali Rwanda ended without an agreement.  All other aspects of the Agreement are agreed upon by both parties, except export taxes, domestic and export subsidies and governance.  On export taxes,  EAC countries insist that they should be given policy space to tax raw materials being exported to the EU as a way to encourage value addition locally, while the EU insists that such taxes would need authorization by an EPA Council comprising of both EU and EAC before being implemented.

Resolution of the matters has been referred to ministerial level at both EU and EAC for final determination.

Below are the possible GSP rates to the EU, as reported in WTO or directly from EU market access website which are likely to be imposed on Kenya after October 1st 2014 unless a solution is found ahead of the date..

Possible EU MFN Tariff Rates for Kenyan Fresh Produce

Product Volume (MT) Value (Ksh) MFN Rates
Possible Tariff Loss (ksh) Notes
Cut Flowers 124,858,139 46,333,368,752 12.0 5,560,004,250
Fresh Vegetables 73,541,742 17,842,756,059 13.6     2,426,614,824 10.5 for beans and other veges;  9.9 for snow peas and sugar snaps
Fresh Fruits 45,638,285 4,093,256,565 5.2         212,849,341 avocadoes =4.4% pineapples=5.8%,
Nuts 12,652,581 2,802,940,552 2               56,058,811 macadamia Nuts
Processed vegetables 126,677,676 13,939,321,533 19.2         2,676,349,734 14.4 = frozen,  canned 19.2
Processed Fruits 93,608,178 9,729,703,527 20.9         2,033,508,037
Total 476,976,601 94,741,346,987 12,965,384,997

 Source: Export data (KNBS), Tariffs – WTO Tariff Data (Applied EU MFN Average of AV Duties 2013 and EU Market Access Statistics (roses and beans)

In brief, if Kenya is to pay GSP rates to the EU, horticulture would be losing about one billion ksh monthly, considering that 87% of our total horticulture exports go to the EU. The taxes would be applied on C&F values, not FOB.

The industry has intensified lobbying the Government to ensure non-disruption of business beyond September 31st 2014. We will keep you informed.

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