The Kenya-EU Free Trade Αgreement is exemplary for Waning Power Europe

This article appeared in its first form as Op-Ed on the euobserver website.

Authors: Blandina Bobson (Director Programmes, Oxfam Kenya), Andrew Gogo (Fiscal Justice Strategist, Oxfam Kenya), Herbert Kafeero (Programs and Communications Manager, SEATINI), Jonathan Matthysen (Advocacy Advisor, Oxfam België/Belgique), Emily Ngolo (Just Economies Programme Officer, Oxfam Kenya) | October 27, 2023

EU Commissioner for Trade Mr. Valdis Dombrovskis popped a bottle of champagne in his office early June 2023. After the failed ratification of an Economic Partnership Agreement (EPA) with the East African Community (EAC) in 2016, he finally could declare success. The Republic of Kenya, which belongs to the EAC, and the European Union found a compromise for a bilateral free trade agreement. However, there is little to celebrate.

An agreement long in the making

Trade has always been a central tenant of European external policy. Whereas for most of the 20th and 21st century European countries trade policy was outright imperialistic, the narrative around trade started changing with the beginning of the European integration and the process of decolonization.

Under de veil of development policy Europe and countries from Africa, the Caribbean, and the Pacific (ACP) signed the Lomé-agreements. This entailed non-reciprocal access to European markets which would help the ACPs countries exporting industries.

It also locked in postcolonial trade relationships between European countries and ACP countries, much to the dissatisfaction of the US. With the US increasingly shaping the world order, they successfully challenged the arrangement under the World Trade Organization.

The subsequent Cotonou and post-Cotonou agreements kept the preferential market access for Least-Developed Countries (LDCs) and made it conditional for others under the Generalised System of Preferences (GSP). Those outside of this preferential treatment were asked to sign reciprocal free trade agreements called Economic Partnership Agreements (EPA).

Unity in diversity: only for the EU?

Continuing to shape the world in its image, the European Union aims “to collaborate in support of regional and continental integration[1] with its post-Cotonou agreement. For that reason, the idea was that the EPAs would be signed en block with Regional Economic Communities (REC). These are regional groupings of African states which are intended to form the building blocks for the African Continental Free Trade Area.

The EPA with the East African Community, which is one of the RECs, was already dead and gone in 2016, with EAC member states recognizing that local industries would not be able to withstand competitive pressures from EU firms, locking in the region even further in its role of provider of low-value-added primary commodities. It was calculated that the welfare in the EAC would decrease while the EU would register a welfare gain of $212 million.[2]

This posed a problem for Kenya as the only non-LDC in the region. While its neighboring countries would remain in the most preferential trade arrangement as LDCs, the EU threatened to withdraw the remaining preferential market access to Kenya if it did not negotiate and enter into an EPA. With other EAC countries not willing to sign the regional EPA, Kenya decided to make use of the variable geometry principle of the bloc, which allows a member state to move forward without the others[3].

This again created a problem for the EAC on its turn. Considering Kenya is part of the customs union of the EAC which ensures the free flow of goods between the countries, the enforcement of the agreement would lead to a free flow of European goods to all EAC countries through Kenya, given the difficulty of enforcing rules of origin, in a process called trade diversion. Intra-EAC imports would decline by $42 million[4]. Conversely, the EU would never allow its member states to sign bilateral trade agreements.

Indeed, Kenya’s move is in breach of the Customs Union Protocol and the Common Market Protocol of the EAC. On top of that, its interpretation of the variable geometry principle might be flawed on two levels. Firstly, the principle is intended to be evoked only between members of the community and not third parties, like the EU. Secondly, EAC heads of state decided in February 2021 that Kenya was allowed to invoke the principle to implement the standing EPA, but not necessarily to open new negotiations.[5]

The Kenya-EU FTA effectively undermines the efforts of EAC states towards regional integration. The European Union is to blame for undermining the region’s successful integration efforts[6].

Brussels effect or boomerang effect

One may suspect the European Union is applying a cunning divide and rule strategy. Indeed, the bloc is known for being able to export its legislative framework towards other parts of the world, dubbed the Brussels’ effect. If the deal with Kenya gets ratified, it is likely that rules enshrined in the agreement would be taken over de facto or de jure by other EAC states and ultimately find their way in the African Continental Free Trade Area.

This becomes apparent in the chapter on trade and sustainable development, which contains binding provisions on the environment and climate. While binding environmental provisions should be welcomed, the fact that the agreement does not recognize the differentiated responsibility of countries to combat climate change is unbalanced to say the least. Binding environmental provisions should be supplemented with effective financial support, given the difference in both partners’ resources.

The EU’s intentions also become clear reading the rendezvous clauses that are introduced in the agreement. These oblige Kenya to continue to negotiate in the areas of investment, government procurement, services, sustainable development, intellectual property rights and competition policy after the entry into force. The contentiousness of these issues were part of the reason why the latest multilateral trade negotiations failed.  Now that the Kenyan government will have to negotiate the topics of the rendezvous clauses without the support of its EAC partner countries, its ability to stand its ground against EU pressure might be reduced[7], and historical power asymmetries might be deepened.

While the Brussels effect is certainly at play, the truth is that Europe’s influence is waning. The EU was unsuccessful in finalizing different EPAs. Its postcolonial attempts to close unbalanced trade deals are challenged more and more by its trade partners. As long as the EU misuses trade to further its own interests at the detriment of the interests of other countries, the Brussels effect might well become a boomerang effect.

What should the EU do?  

The European Commission must refrain from negotiating bilateral free trade agreements with individual countries that are part of Regional Economic Communities, as to avoid undermining the regional integration.

The Commission must also refrain from using direct or indirect pressure to negotiate, sign and ratify agreements that are detrimental to the development of other countries. The European Parliament must see to it that trade agreements are negotiated freely, fairly, and balanced, and reject any trade agreements that are not.

The Council of the EU must refrain from applying standstill clauses in its negotiation mandates as they limit the policy space of countries to adapt their trade policy following changing development challenges and opportunities.

When adding sustainability requirements to trade agreements, the European Commission and the Council should recognize Europe’s (historical) contribution to climate change, poverty and war and provide additional unbound financial support to APC countries to implement such sustainability requirements.

On the basis of the WTO’s enabling clause, the European Union and its member states should work towards an OECD unified preference scheme for Least Developed Countries and their Customs Unions that grants full tariff-free and quota free product coverage. Technical assistance must be provided to comply with standards and non-tariff barriers. Such assistance should also focus on high value-added products as to support the industrial base of LDCs. This scheme should be set up in line with the African Union proposal for such a common scheme[8].
What should Kenya do?  

Kenya could explore the alternative option available i.e., the Generalized System of Preferences Plus (GSP+) where her top 27 exports to the EU including the much-cited flower and horticulture exports will access duty free and quota free. This is already being used by countries like Peru, Paraguay, Mongolia, Cape Verde, Ecuador among others.
The European Union does not apply the above-described strategy only to the EAC. Upcoming Case study #7 on the impacts of EU policies on local dairy value chains in West Africa explores how the interim EPA with Ghana and Côte d’Ivoire might impact the West-African dairy industry, although many ECOWAS countries and Mauritania decided to not go forward with the conclusion of the EPA.