Making Trade Beneficial: A Look at Kenya’s UK and US Trade Agreements

In February 2020, Kenya and the United States announced the start of discussions to conclude a comprehensive and reciprocal free trade agreement (FTA), which would be the first of its type between the US and a Sub-Saharan African country. The US is Kenya’s fifth-largest trading partner and second-largest export market, accounting for over 9% of Kenya’s exports necessitating the need for strong links between the two countries. By attempting to negotiate a robust and comprehensive FTA equivalent to those previously negotiated between the US and other, more developed economies, the US-Kenya FTA will also set the tone for future arrangements between the US and Africa. 

While the conclusion of such an agreement is complex, the negotiations have taken account of the differing degrees of development between the United States and Kenya—an encouraging sign for Kenya’s bargaining position. This is particularly pertinent given that the US–Kenya FTA has avoided the ire that surrounded the Economic Partnership Agreement (EPA) between Kenya and the UK.

This article briefly highlights and compares issues arising out of the US FTA and the UK EPA in the context of trade arrangements that work for African countries.

Trade Agreements: A Double-Edged Sword

One of the key drivers of development since the industrial age has been the exponential growth of trade between countries. This has been fuelled by increasing trade liberation and the formation of the evermore-popular trading blocs and formal economic agreements.

Trade agreements between Africa and developed nations are a particularly sensitive matter. Disparities in bargaining power have made it difficult to separate mutually beneficial trade arrangements from the suspicion of exploitation. While enabling the growth of international supply chains is beneficial, developing countries have experienced problems that raise backlash and questions on whether the benefits of trading with a more developed partner outweigh the harms.

Trade along the developed-developing country lines can establish a status quo that perpetuates the distinction between the developed and the developing partner. Industries in developed countries enjoy advantages that enable them to export products into developing markets that are more affordable or of better quality than those produced by local industries. This leads to domestic industries being outcompeted and increases the market’s reliance on imports. In addition, developing countries typically export primary products, which are more price inelastic than the manufactured goods imported from their developed partners. With the underdeveloped local industries unable to turn primary products into goods for the local market, developing countries are much more exposed to disruptions in the international market while at the same time having a much lower capacity for resilience. A dip in the market creates revenue shortfalls that set back development planning or even create a crisis that will take years to resolve.

For trade to be safe and beneficial, brokering mutually trade agreements requires transparency and proper consideration of those likely to be affected. This can reveal a more accurate picture of the costs and benefits of a particular trade arrangement. More importantly, it is the basis of confidence that the process and resulting trade agreement has the interests of all parties at heart.

The Marred Process of the UK–KENYA EPA

The Economic Partnership Agreement (EPA) between the UK and Kenya signed in December 2020 is designed to ensure a more secure and productive relationship between the two countries. The two economies already had a strong trade relationship that was particularly beneficial to Kenyan agricultural producers, with 43% of Kenyan vegetable exports and 9% of flower exports being destined for the UK. The total value of trade between the parties is considerable, with exports from the UK to Kenya valued at $534m exports from Kenya to the UK valued at $447m in 2019. The EPA was intended to serve as a framework for the continuation and progressive increase of trade between the UK and Kenya.

So, what does this mean for both parties? For the UK, this mainly secures links for UK businesses to the Kenyan market. Kenya expects the same, as well as economic development support targeting both job creation and security, and a focus on facilitating the trade capacity of businesses in particular sectors—mainly agricultural and floriculture.

Despite these promises, the process was marred by several objections. Legality issues regarding the UK-Kenya EPA were a key area of concern for Kenyan MPs. Firstly, Kenya’s 2021 Treaty Making Act gives parliament as the representatives of Kenyans the final say over any trade deal. This principle was under violation due to the EPA’s prohibition of modification locking out the input of Kenya’s lawmakers.

Kenyan farmers also expressed concerns with the EPA, noting the effect that the vast differences in agricultural subsidies between the two countries would have on their ability to compete with UK products. They were justifiably wary of the effect tariff- and quota-free UK products into the Kenyan market would have on their economic rights and interests. They went as far as to sue the government for its failure to ensure public participation in the agreement negotiation process. 

Comparison with the US–KENYA FTA Process

One overarching issue that has undoubtedly defined Kenya’s negotiating strategy of its FTA with the US is ensuring that any future commercial agreement with the US protects existing market access similar, to the largest extent possible, that enjoyed under AGOA. Indeed, Kenya’s priority in the negotiation is to establish a predictable trade regime with the US that secures Kenya’s continued access to the US market post-AGOA.

The negotiation process put forward considerations that complement Kenya’s economic policy programmes, including the promotion of foreign direct investment and growing trade capacity in Kenya. This was mainly influenced by President Kenyatta’s five-year economic policy program, which was revealed in December 2017, as he strives to deliver on his administration’s “Big Four” agenda items: manufacturing, affordable housing, universal health coverage, and food security.

Kenya’s bargaining position is significantly undermined given that its smaller economy has more to lose. This was factored in by Kenya which hired consultants with economic, trade, and legal expertise to provide technical assistance to negotiators. Kenya also invited public opinions from stakeholders for the establishment of inclusive negotiating objectives

Kenya’s interests in these and other areas have markedly required the US to be more flexible than in previous FTAs. This is in stark contrast to the ‘no amendments’ disposition of the UK-Kenya EPA that irked MPs and locked out the sentiments of Kenyans.

The separation of powers is a basic foundation of democracy. Because the legislative and executive arms of government have independent powers, they work together to carry out most governmental responsibilities, including the formulation and implementation of international trade agreements.

The public—both directly and as represented by parliament—is a crucial check on government power in trade negotiations: filling in the gaps and forcing government officials to behave in conformity with public interests.

As much as the US–Kenya FTA has yet to be concluded, as mentioned earlier, it differs from the UK agreement in terms of the perception of public participation. Public participation in trade agreements necessitates a tenable link between facts and government action performed per the applicable legal standard. These characteristics are important safeguards against undue imposition.

The endorsement of Kenyans becomes more likely when they have the assurance that their interests were considered as opposed to a sudden imposition of rules by their government on behalf of the trade interests of another. Suffice to say, noting Kenya’s colonial history with the UK, prudence would have necessitated a consultative rather than an ‘imposition’ approach in an issue that goes deep into the livelihoods of many Kenyans.

Challenges in Common

Both agreements have caused concerns over their effect on Kenya’s political and economic commitments to its African neighbours. They both potentially undermine regional integration by watering down trade protocols agreed to by Kenya’s fellow East African Community (EAC), Common Market for East and Southern Africa (COMESA), and African Continental Free Trade Area (AfCFTA) members.

Other than sticking to commitments, there are remaining concerns that prioritising trade links with developed countries will impair the development and long-term stability of Kenyan and African industries. Intra -Africa trade is still far behind those of other continents and their internal trade, with only 17% of total African exports in 2017 being intra-African, compared to intra-continental trade rates of 69% in Europe and 59% in Asia in the same year. To change improve on this, African countries need to focus on diversifying their export industries to ensure economic stability and resilience, strengthen productivity across a wider scope of activities, and create conditions for businesses of all sizes to be locally and internationally competitive.

In conclusion, both the FTA with the US and the EPA with the UK have the potential to secure legitimate wins in the way of trade and economic development. Intra-African trade must, however, remain a priority as it is a unique path to economic diversification and inclusion. Being between neighbours that are of comparable development status, intra-African trade promotes African manufacturing and processing, builds capacity on the continent, and opens channels for knowledge transfers. This, if anything, enables African countries such as Kenya to increase the total value of exports to their trading partners and makes both intra- and extra-African trade arrangements more beneficial.