DEALS OR MISSES

How much care does Kenya take when signing treaties?

In Summary
  • Kenya has been on a charm offensive to close trade bilateral agreements in recent years.
  • As tools used to promote trade while placing certain local protections therefore, Kenya should engage in bilateral and multilateral agreements very carefully.
Mauritius International Trade minister Seetanah Lutchmeenaraidoo and President Uhuru Kenyatta during their meeting at State House in Nairobi, January 17, 2017
Mauritius International Trade minister Seetanah Lutchmeenaraidoo and President Uhuru Kenyatta during their meeting at State House in Nairobi, January 17, 2017
Image: PSCU

The undercurrents of the on-going international trade wars led by the US-China rivalry, the posturing for digital trade taxation, as well as the aftermath of COVID-19 pandemic, are the negotiations and re-negotiations of bilateral and multilateral agreements.  

With the reality that of changed world trade and fiscal order settling in and hastened by the COVID-19 pandemic, it is expected that existing treaties will necessarily require renegotiations and new treaties signed.

On its part, Kenya has been on a charm offensive to close trade bilateral agreements in recent years.

Some of these agreements have been concluded and some are conceivably in the process of conclusion. These agreements typically precede or include fiscal treaties in the form of Double Tax Avoidance Agreements.

Central to international agreements/treaties is the principle of pacta sunt servanda (pacts or treaties must be kept).

More precisely, it means that ‘Every treaty in force is binding upon the parties to it and must be performed by them in good faith’.

This principle is premised on the clear understanding that similar to any contract, a state is considered to have voluntarily signed the agreement, had the capacity to, and had all the time during the negotiations to change its mind or change the terms.

Once the proper procedure for bringing the agreement into force has been completed (signed, ratified, etc), a state must keep the agreement, unless it can prove that there was an unlawful threat, force, coercion, fraud or material factual misrepresentation.

It is this consent to be bound by an agreement that it has signed that a state lends itself to international law. States are rarely excused or allowed to escape from what has turned out to be a bad bargain.

Unless a state is able to demonstrate material breach, a fundamental change of circumstances that formed an essential basis for consent and impossibility of performance.

As tools used to promote trade while placing certain local protections therefore, Kenya should engage in bilateral and multilateral agreements very carefully.

There can be no reasonable subsequent excuse for any casual engagement at the negotiation stage up until conclusion and entry into force, especially where this subsequent excuse concerns a denial of terms of the agreement unilaterally by Kenyan regulatory bodies.

In any event, isn’t it foolhardy to subject subjects of international agreements to onerous interpretation and dispute resolution process, which could have been avoided at the outset by careful negotiations?

All this so while the Vienna Convention clearly states that treaties should be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

At present, the system is replete with cases concerning disputes on the application of Kenya’s host of bilateral and multilateral agreements.

For some of these cases, the issue is a clear denial of privileges/advantages that Kenya has clearly promised to accord in these agreements.

A number of these disputes concern Double Tax Agreements. This increasing number of disputes projects Kenya in a bad light in the community of nations and seriously dims Kenya’s efforts of becoming an international trade and financial hub.

To reverse this trend, thorough care is required at treaty generation and negotiation, ensuring stakeholder input in order to facilitate informed and robust treaties.

Christopher Kirathe is a Tax Partner, EY