NEGOTIATIONS

Strengthening trade ties with the US

The message that Kenya is sending to the world, at least on matters trade, is that we are ready and open for business

In Summary

•Under AGOA, eligible African states receive preferential tariff-free access to the US market with respect to about 6,500 products

•The state this week commenced negotiations toward a mutually beneficial free trade agreement (FTA) with the United States

President Uhuru Kenyatta meets US officials at the opening of the Kenya-US Trade Conference at the UN Complex in Gigiri, June 28, 2018
President Uhuru Kenyatta meets US officials at the opening of the Kenya-US Trade Conference at the UN Complex in Gigiri, June 28, 2018
Image: PSCU

Key to Kenya’s development agenda is increased international trade. It is with this in mind that the current administration is courting numerous international players, both state and corporate bodies, with a view to forming new or rebalanced trade relationships. The message that Kenya is sending to the world, at least on matters trade, is that we are ready and open for business.

In line with this strategy, President Uhuru Kenyatta this week led a delegation to Washington D.C. with a view to commence negotiations toward a mutually beneficial free trade agreement (FTA) with the United States. This is a pioneering move that stands to place Kenya at the forefront of the US’ reimagined relationship with the African continent under the Trump administration. This prominent position has been seemingly corroborated by US officials through unofficial reports that should negotiations between Kenya and the US translate into an FTA, the same would be utilised as a model for trade relationships between the US and state players in the African continent.

The above considered, a key question that comes to mind, is how Kenya stands to benefit from an FTA with the US, especially considering current trade with the US under the African Growth and Opportunity Act (AGOA). Under AGOA, a multilateral nonreciprocal preferential trade instrument between the US and state players within the African continent set to expire in 2025, eligible African states receive preferential tariff-free access to the US market with respect to about 6,500 products. Kenya, a beneficiary of AGOA, has, through the two decades since its commencement, sought to take advantage of the trade deal by consistently increasing its trade volumes with the US. This has resulted in Kenya being a major exporter of various commodities to the US market, including flowers, textiles, and apparel. US statistics show the trade relationship between the two countries translated to $ 1 billion worth of goods and services being traded in the year 2018, with a $280 million surplus in Kenya’s favour.

Noting the success of AGOA, it is expected that a negotiated FTA between Kenya and the US will restrict, or altogether remove trade limitations under AGOA with a view to trumping the success of the same. Specifically, it is expected that the bilateral reciprocal FTA will cover a wider range of goods and services, will ensure that benefits of the FTA will capture the entire supply chain in both countries and will simultaneously protect Kenya’s fledgling industries from being overwhelmed or throttled by US imports.

The latter will be a key consideration for the president and his team while in the US. Unlike AGOA, which was nonreciprocal in nature, the expected FTA between Kenya and the US will be reciprocal, ensuring access to Kenyan markets for US goods and services. If the reciprocity of the FTA is not properly managed, local industries stand the risk of being priced out of the market by US goods and services.

Karen Kandie – MD IDB Capital