EU-Kenya trade agreement - guide

18 December 2023
by eub2 -- last modified 18 December 2023

The EU and Kenya signed on 18 December an Economic Partnership Agreement (EPA) to boost bilateral trade in goods, increase investment flows, and contribute to sustainable economic growth.

How big is EU-Kenya trade?

Kenya is the ninth largest economy of the African continent and is East Africa's main economic hub. Kenya's economy achieved broad-based growth, averaging 4.8% per year between 2015 and 2019, significantly reducing poverty, from 36.5% in 2005 to 27.2% in 2019. The economy experienced a reasonably strong recovery after the Covid-19 pandemic, albeit the country's economy is currently affected by high inflation. GDP growth remained robust at 4.8% in 2022 (source: Kenya Overview: Development news, research, data | World Bank).

The EU is Kenya's second largest trading partner, and it most important export market. Total trade between the EU and Kenya reached €3.3 billion in 2022, with an increase of 27% compared to 2018. Trade between the EU and Kenya is balanced, as opposed to Kenya's trade with other major partners, with a slight surplus in the EU's favour of €768 million.

The EU's imports from Kenya amount to €1.2 billion and are mainly vegetables, fruits, and flowers. EU's exports to Kenya amount to €2.02 billion and are mainly in mineral and chemical products and in machinery.

The EU is Kenya's first export destination, with 16% of its total exports in 2022, followed by Uganda (12%) and USA (8%). Kenya is mainly importing from China (20%) and India (11%); the EU is ranked in third place, with 10% of total Kenyan imports.

Why has the EU negotiated an agreement with Kenya?

Kenya represents a major partner for the EU in Africa, in the current economic and political context, and this agreement will bring our relationship to the next level. The country is one of the most stable democracies in the continent, with a growing political role in the region and internationally.

Kenya is one of the key EU partners in Sub-Saharan Africa to pursue an agenda of shared values and interests, promote peace and security, prosperity, and democratic stability in the region, as well as multilateralism.

The Economic Partnership Agreement (EPA) between the EU and Kenya was explicitly integrated as a key deliverable of the EU-Kenya Strategic dialogue, launched in June 2021, and it is a crucial component of our Africa engagement strategy. It represents a significant development, considering Kenya's economic and political importance in the East African region.

The EU-Kenya EPA aims at implementing the provisions the EU-East African Community (EAC) EPA that was concluded in 2014 and will be open for other EAC countries to join. Bilateral implementation is based on a decision of the East African Community from 2021 to let individual EAC members to go ahead under the principle of "variable geometry".

The EU-Kenya EPA will boost bilateral trade in goods and investment flows and contribute to sustainable economic growth. It will also be accompanied by trade-related development cooperation to support economic growth and job creation.

What will the agreement mean for trade in goods?

The main objective of the EPA is to liberalise trade between the EU and Kenya. As in other EPAs, the EU-Kenya EPA foresees an asymmetric removal of tariffs. In practical terms, this means that the EU fully liberalises access to its market immediately upon application of the EPA and all goods from Kenya (except arms) can enter the EU market without tariffs or quotas.

Kenya will open its market gradually to imports from the EU, benefitting from transitional periods. In addition, Kenya will be able to exclude sensitive products from liberalisation.

Finally, Kenya may also benefit from other provisions that consider its development needs such as special safeguards for agriculture, measures on food security and infant industry protection.

How does the deal support sustainable agriculture?

The agreement includes a chapter on agriculture geared towards sustainable agricultural development, including food and nutrition security, rural development, including the sustainable use and management of natural and cultural resources, and income and job creation in the agricultural sector.

This chapter guarantees that the EU will not apply export subsidies, even in times of market crisis, and commits the Parties to a deepened policy dialogue on agriculture and food security, including transparency as regards their respective domestic policies.

How will the deal benefit Kenyan farmers?

The bilateral agreement with Kenya, as for other EPAs, offers opportunities for farmers in EPA partner countries, as the EU is the biggest importer of agricultural products from ACP countries. As the overwhelming majority of Kenya's exports to the EU are horticultural products, this opportunity is particularly important.

Kenya, as other ACP partner countries, can protect some sensitive agricultural products, either by excluding them from tariff cuts or by keeping the option of triggering safeguards in case of an unforeseen, sharp and sudden increase of imports from the EU.

Kenya, as other ACP partner countries, can also take food-security measures where necessary.

EU development assistance, through trade capacity-building measures, supports farming and rural employment, and farmers' capacity to comply with sanitary and phytosanitary and other agricultural standards. This alignment of standards makes it easier to comply with the requirements necessary to bring those products into the EU, further opening trading opportunities in the agricultural sector.

How does the deal support industrial development and diversification of trade?

Together with the bilateral economic cooperation and development cooperation mechanisms, the agreement contributes to good governance in Kenya. These provisions will enhance the business and investment environment and help generate new trading and investment opportunities. Businesses that are in engaged in international trade are more productive, pay higher wages, contributing to the value added in the economy.

The EPAs are international agreements that do not expire. Thus, both the free access of Kenya into the EU market without any time limit, and the long-term free access of EU products to the Kenyan market increase incentives to invest in Kenya, as other EPAs do in other developing ACP countries, and to build capacity to meet EU standards.

Legal certainty, stability and predictability are among the main aspects potential investors are likely to consider when deciding on an investment.

How will the agreement foster the sustainability of trade?

This agreement with Kenya contains a robust and comprehensive chapter on trade and sustainable development (TSD) reflecting a high level of ambition. It incorporates most of the outcome of the EU's TSD review.

The agreement includes for example strong and binding provisions on labour standards, climate change and biodiversity, and gender equality. Furthermore, it prevents both parties from lowering labour and environmental standards to attract trade or investment. These commitments are binding and enforceable. Therefore, his agreement has a high transformative potential.

To what extent does the EPA eliminate existing customs duties?

Kenya has committed to liberalise the equivalent of 82.6% of imports from the EU by value. Under Kenya's current tariff regime, more than half of these imports are already imported duty free, not only from the EU but from the entire world. The remainder will be progressively liberalised within 15 years from the moment the EPA enters into application. 2.9% of it will be liberalised within 25 years.

Kenya decided to exclude from liberalisation various agricultural products, wines and spirits, chemicals, plastics, wood-based paper, textiles and clothing, footwear, ceramic products, glassware, articles of base metal and vehicles.

The liberalisation on Kenyan imports resulting from the EPA will therefore be entirely manageable and spread over a long period of time. There is no risk either of Kenyan market being "flooded" by EU products nor of any significant budget revenue shocks.

What will be the architecture of the agreement?

This agreement with Kenya aims at the implementation of the former agreement successfully negotiated with the EAC members in 2014. It introduces the necessary adjustments for the implementation of the regional EPA by an individual EAC member and is open to any other EAC country to join in the future. It has also been updated to reflect current challenges, such as promoting sustainability, as the negotiation of the EU-EAC EPA was concluded almost 10 years ago. The parties agreed to add an ambitious Trade and Sustainable Development chapter and to update the Economic Cooperation and Development chapter.

On Economic and Development Cooperation, the original agreement with the EAC has been largely preserved, while some changes were needed to align the outdated text to the current EU development cooperation programming. An annex, which is specific to Kenya and the EU, has been added to embody the changes to the regional agreement text. The Economic and Development Cooperation part confirms the EU's ambition to support Kenya in its implementation of the agreement as part of the overall EU-Kenya cooperation and within the framework of the current EU cooperation instruments.

It was agreed that the rules of origin of the Market Access Regulation would apply on a temporary basis to both parties' trade, while the original reciprocal rules of origin would be updated.

The Market Access Regulation provides duty-free and quota-free access to the EU market for products originating in African, Caribbean and Pacific countries which firstly, do not benefit from the EU's Everything But Arms (EBA) scheme and secondly, have concluded, but not yet ratified, an EPA with the EU.

In practice, this means that the rules of origin currently applying to Kenyan exports to the EU will continue to apply for the moment. As a novelty, the Market Access Regulation rules will be applicable for future preferential EU exports to Kenya as well, in case reciprocal rules of origin are not negotiated and applied in the meantime.

It is envisaged that a new protocol on rules of origin will be negotiated as soon as possible, and at the latest within the first five years of the implementation of the EPA. The 2014 Protocol will be the basis for negotiation of the new set of rules, with limited adjustments particularly linked to the bilateral nature of the agreement.

What are the next steps?

The Council has adopted a decision for the signature of the EPA, which took place on 18 December in Nairobi. The European Parliament will have to give its consent for the conclusion of the EPA, after which the agreement will enter into force.

Source: European Commission