By ADAM IHUCHA--
Most favoured nation and tax on exports clauses have remained hard nuts
to crack for the East African and European trading blocs to conclude a trade
deal.
The EAC and EU met in January 30, 2014
in Brussels, Belgium for Economic Partnership Agreement (EPAs) talks, but
failed to compromise on the MFN and import tax articles.
However, the two blocs agreed on the
chapter on institutional arrangements, dispute settlement and final provisions
with the exception of the article on the relations with the Cotonou Agreement
(non- execution clause).
“Consensus
was not reached by both parties on Article 15 for duties and taxes on exports
and on Article 16 for MFN” the EAC Secretary General, Dr. Richard Sezibera said
in a statement.
Ministerial talks, to be preceded by
technical and senior officials negotiations, would be held again in March 2014
in the EAC region to work towards the conclusion of the EPA negotiation
process.
An MFN clause intends to curtail all
the signatories, EAC inclusive, to enter into bilateral talks with other trade
partners on areas where the EU does not enjoy preferential terms.
Analysts say the clause, would require
the EAC to extend to the EU the same preferences it grants to third parties
under future trade agreements.
EAC negotiators say the EU has been
keen on the clause to shield itself against emerging economies like India and
China.
The EAC demands that the MFN clause be
removed or modified to limit its application to agreements with other future
trading partners.
Duty Free
The EU also pushes EAC Partner States
to agree on “duty free and ‘quota free’ import of goods immediately and
possibly services in the future from each side.
Article 15 of the EPA states that
parties should not institute any new duties or taxes in connection with the
exportation of goods to the other party, on goods exported to the other party
that are in excess of those imposed on like products destined for internal
sale.
This article brings in restrictions on
how the EAC member states use export taxes, for example, as trade policy
instrument and instruments of revenue collection.
EAC member states feel that this clause
needs to be removed from the agreement as export taxes are in accordance with
the world Trade Organization (WTO) rules.
EU, however, insists on measures
disciplining the use of export taxes in the EPA.
A senior Economics Lecturer at Mzumbe
University’s Business School, Dr. Honest Ngowi says the clause implies that
this is a reciprocal agreement as opposed to earlier non-reciprocal agreements
under the Everything But Arms (EBA) agreement.
The implications of duty free trade
agreement is that EU will sale to the EAC partner states its goods and services
and the latter would not be allowed to impose import tax.
The direct implication of duty free
trade agreement is loss of government revenues that would have been generated
from import tax.
“For the countries that depend much on
trade taxes like EAC member states, duty free international trade has a lot of
direct negative revenue implications” he warned.
“Under quota free agreement, it means
that there will be no quantity limitations on what can be traded in this
agreement” Dr. Ngowi explained.
Ms Aileen Kwa, from trade for
development programme coordinator at South Centre, an international policy
institution, says the EU demands that 82 per cent or more of trade in the EPAs
agreement be liberalized.
“This will be a threat to local
production and industrial development,” Ms Kwa said in an earlier interview.
Some of the sectors where current
production will be at risk are processed oil products, chemical products for
agriculture, medicines, vaccines, and antibiotics.
Rules of Origin
In the Brussels talks, EU and EAC
underscored the need for technocrats to discuss further on Rules of Origin and
Agriculture in a bid to iron out the outstanding issues.
Two elements stand out in EPA
negotiations regarding agriculture. These include the opening of the EAC market
to EU agricultural products and the question of EU domestic subsidies.
Kenya is the only state to be hurt if
EAC fails to sign EPA with EU as it is not among the Least Developed Countries
(LDC) like the other four EAC members - Rwanda, Tanzania, Burundi and
Uganda - which trade with the EU under Everything But Arms (EBA) arrangement
under which all products except arms enjoy tariff free access to the EU market.
Experts say without EPA, Kenya’s
exports can be subjected to vindictive taxes under the third country or the
Generalized System of Preferences (GSP).
GSP is a trade arrangement through
which the EU provides developing countries and territories with preferential
access to the EU market in form of reduced tariffs for their goods when
entering the EU market.
For instance, if Kenya does not sign
the deal, its flowers will be subjected to an 8.5 percent duty, which will make
the flowers less competitive.
Without the EPA, buyers in the EU
market may resort to cheaper flowers from other suppliers, which would make
Kenya lose in price competition.
Kenya is the biggest flower exporter to
the EU and its foreign exchange earnings have increasingly soared to 293
million Euros in 2012 up from 276 million Euros in 2010.
In December 2012, the EAC secured a
two-year extension from the European Parliament in which to finalize the trade
talks, pushing the January 2014 deadline to January 2016.
Uganda, Rwanda, Kenya, Tanzania and
Burundi signed an interim trade deal with Europe in 2007 to guarantee continued
duty-free and quota-free access to the EU market following the expiry of the
non-reciprocal trading arrangement based on a WTO waiver granted in 2001.
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