USA Negotiaions Objectives Explicit

The negotiations toward a possible Kenya-USA Free Trade Agreement are reportedly underway  and this is being done on the basis of each Country’s Negotiation Objectives. These objectives cover an array of areas from  agriculture to services. On agriculture, the Kenya’s objectives  indicates simply that “Negotiations on SPS, shall be based on the existing Cooperation Agreement between the USA and EAC.” On the same breath, the USA’s   negotiations objectives  are more elaborate.

Under Trade in  Agriculture Goods, the USA’s  objectives aim at securing comprehensive market access for teh U.S.A’s agricultural goods in Kenya by reducing or eliminating tariffs, providing  reasonable adjustment periods for U.S. import-sensitive agricultural products, engaging in close consultation with Congress on such products before initiating tariff reduction negotiations, eliminating  practices that unfairly decrease the U.S.A market access opportunities or distort agricultural markets to the detriment of the United States, including Non-tariff barriers(NTBS) and restrictive rules in the administration of tariff rate quotas; Promoting greater regulatory compatibility to reduce burdens associated with unnecessary differences in regulations and standards;establishing specific commitments for trade in products developed through agricultural biotechnologies, including on transparency, cooperation, and managing low level presence issues, and a mechanism for exchange of information and enhanced cooperation on agricultural biotechnologies.

From these objectives, it is clear  that  the USA, as opposed to Kenya, is more explicit in what it wants to achieve from  these talks and eventually from the FTA that could ensue. Accordingly, it is  not surprising that the business community, who will be main actors in this deal expectedly form USA, are coming up with more specific demands. One such group is the International  Dairy Foods Association (IFDA) , whose position on the negotiations form the  basis of this brief  write up.

In its letter dated 5th August, 2020 to the U.S Trade Representative on the ongoing negotiations, IFDA has urged the negotiators to ensure US gets market  for US good and agricultural  exports and in   particular, dairy products, to Kenya.The letter has thus deal with three key elements namely Market Access, Sanitary and Phytosanitary (SPS) Measures, and  Capacity Building and Regulatory Reform.

It is therefore important to discuss the contents of the letter and what it potentially means for the Kenya’s dairy sector and also with regards to the East African Community integration efforts.

Market Access

On Market Access , the IFDA’s  states  that:

“U.S. negotiators should seek ambitious tariff reductions, including for protected dairy products in Kenya, while seeking a simplified, trade facilitative entry of U.S. dairy imports into Kenya. Currently, Kenya maintains its highest tariffs on a range of agricultural products, including dairy at an average of over 50 percent, because it considers dairy to be “sensitive” products and uses tariffs to stabilize domestic prices. In fact, Kenya’s tariffs on dairy imports are significantly higher than most other agricultural import tariffs and present the primary barrier to U.S. dairy exporters to Kenya. In addition to the prohibitively high tariffs, Kenya’s “Dairy Industry Import and Export Regulations (2004, Revised 2012)” require importers of dairy products to apply for an import permit, receive a recommendation from the national Dairy Board, be granted the import permit, then obtain a clearance certificate indicating the import permit was granted – all of this must be done for every consignment of imported dairy products. These concerns typify the kind of market access issues IDFA encourages U.S. negotiators to prioritize”

How does  this position sit with Kenya’s dairy industry There are several  issues raised in the statement  that are worth discerning;Firstly, the US dairy sector is highly subsidized. In the multilateral trading system Subsidies, governed by the Agreement Subsidies and Countervailing Measures (SCM Agreement) can be sector specific.

The US  dairy  sector  is heavily subsidized  while the Kenya dairy is largely struggling, so much so that Kenya recently put in place measures aimed at reducing influx of ‘cheap milk from Uganda. This blog has tackled the Uganda Milk issue in an earlier post. The  question beg whether the  Kenya milk  industry will survive the US competition. We need to remember that once  the FTA is operationalized it may  be  almost impossible for Kenya to apply countervailing duties against the US dairy products.

Secondly is EAC’s Rules of  Origin in the  in the  context of the EAC Common Market Protocol. The EAC currently has a Common External Tariff. The tariff rules applicable to the products from the EAC Countries and lower than those from the countries outside the EAC and this of course is subject to these products having the certificate of  origin. Given Kenya producers and sells its milk products across the EAC, what will make the other Partners states from  treating these products as not  entirely originating from Kenya hence subject to higher tariffs? How will this be resolved? In other words the biggfer question is , will the proposed FTA lead to preference erosion in the EAC?

Sanitary and Phytosanitary Measures

The preference of this body is that  U.S negotiators  to seek “SPS commitments that align with USMCA commitments, and that eliminate Kenya’s use of SPS measures to prevent the import of dairy products”

It further contends that:

“Dairy Industry Import and Export Regulations (2004, Revised 2012)” requires dairy imports into Kenya be physically tested for radioactivity and be accompanied by attestations that the products stem from milk that originates from animals within the country of export, that the product has not been transshipped, and that the product has received not just one, but two pasteurization treatments. Consignment-based testing is not risk-based, not science-based, and exponentially increases costs and is more trade restrictive than necessary. It is imperative that U.S. negotiators ensure Kenya adopts SPS commitments that are consistent with the WTO and other, more recent agreements concluded by the United States”

Addressing this would require an interrogation of the Kenya’s  regulations in the context of WTO’s Agreement in Sanitary and Phytosanitary measures (SPS). The position taken by the American dairy producers seems to imply the  Kenya’s D Dairy Industry Import and Export Regulations (2004, Revised 2012 are not in line with the SPS Agreement. But are they? Again, the  we shall be exploring this aspect in more detail in an upcoming post.

Capacity Building and Regulatory Reform:

On this  matter, the IFDA’s letter reads in part that:

IDFA encourages U.S. negotiators to pursue good regulatory practices commitments with Kenya, such as those in USMCA and promoted in multilateral fora such as the Asia Pacific Economic Cooperation (APEC). IDFA further encourages U.S. negotiators to undertake robust capacity building efforts that focus on technical assistance for Kenya’s system of oversight, including regulatory reform, and the adoption and implementation of international guidelines, standards, and recommendations, such as those published by Codex Alimentarius. IDFA opposes providing Kenya with commodity-specific capacity building, which has the potential to disproportionately benefit certain commodity industries over others, creating a situation where U.S. agricultural exporters may be competing with one another.”

Capacity building, just like other forms of technical  assistance, has remained a point of controversy in international trade. One issue  here could be the modality of implementing capacity building provisions , any, in the intended agreements. The other  issues is whether Kenya has the capacity to makes its dairy products competitive enough to access the US  market, since the agreement is reciprocal. 

Way Forward?

These issues deserve more close interrogation and this will helpful in having the stakeholders engage in a more meaningful discussion on the merits and demerits of the proposed FTA on Kenya’s agricultural sector generally and the dairy sector in particular. The author is working on a more comprehensive research that will address this arguments and other trade policy implications of the proposed FTA in detail.