By Judith Akinyi Ogolla (email), Student of the Postgraduate in African Business Studies and Paul N. Ngang (LinkedIn; email), Director of the Postgraduate in African Business Studies, Thomas More University of Applied Sciences, Mechelen, Belgium.
Developing countries, particularly Least Developed Countries (LDCs), face significant challenges in implementing customs reforms. The World Bank has identified the complexity of balancing the three fundamental functions of customs administrations as the primary obstacle to these reforms. These functions include facilitating trade, collecting revenue, and ensuring import security at the border. To increase the efficiency of customs administrations, new approaches must be adopted that strike a balance between these functions. The World Bank’s note emphasises the importance of finding the right balance to achieve successful customs reforms in developing countries (Desiderio, 2023).
This article examines the trade agreements that Kenya, an LDC in East Africa, has signed with several African countries and the European Union. These agreements allow Kenya to import and export certain products duty-free or quota-free, resulting in increased revenue and economic development. The paper discusses the concepts of duty-free and quota-free, Kenya’s trade agreements with other African countries and the EU, products exported to the EU, and firms involved in the trade. The article also compares East African duty-free and quota-free trade with the EU and provides examples from trade with the United States.
The United Nations Conference on Trade and Development (UNCTAD) established the LDCs category in the early 1970s to address low-income states’ structural and infrastructural challenges in achieving sustainable development. LDCs such as Kenya have been seeking ways to bridge the economic disparities with more advanced economies by participating in international trade. However, LDCs require flexibility and capacity to compete globally, which can be challenging due to limited tax revenue and domestic savings. Therefore, in recent decades, LDCs have prioritised developmental strategies involving increased global economic participation through exports and inward foreign investment. Kenya’s economic partnership with the European Union (EU) has provided the country access to duty-free and quota-free trade for most of its commodities, contributing to economic development. Nonetheless, obstacles continue to characterise the partnership. This article reflects on the challenges faced by LDCs in engaging in international trade and explores the benefits and limitations of Kenya’s economic partnership with the EU.
Understanding Duty-Free and Quota-Free Trade
Duty-free and quota-free are essential concepts in economic partnership agreements. Duty-free means purchasing a commodity without paying import, sales, value-added, or other taxes. On the other hand, quota-free refers to a situation with no limits or restrictions on the amount of a particular product or commodity that can be imported or exported. The introduction of free trade zones over a thousand years ago encouraged large-scale imports and exports. Understanding the concept of duty-free trade requires understanding custom duties, which refers to taxes on transportation across international borders. Different products have different duty rates determined by factors such as where the product was bought, what it was made of, and where it came from.
Quota-free trade was introduced to ensure that governments impose limits on the number of specific products being imported into respective countries. This concept benefits businesses by increasing efficiency, reducing costs, and allowing access to new markets and customers. It also helps consumers by providing greater variety and lower prices for goods. Moreover, quota-free trade has allowed governments to protect domestic industries and vulnerable producers. Duty-free and quota-free trade are essential in facilitating global transactions and encouraging economic development. Understanding these concepts is crucial for individuals and businesses seeking to expand their markets and reach new customers.
Kenya’s Trade Agreements: Promoting Economic Growth and Integration
Kenya has signed several trade agreements, including the African Continental Free Trade Area (AfCFTA) and the African Growth and Opportunity Act (AGOA), to increase trade, promote economic growth and development, and integrate African countries. AGOA is a preferential trade program that gives eligible countries, including Kenya, duty-free and quota-free access to the US market for certain products such as textiles, apparel, agricultural products, minerals, and manufactured goods. As a result, Kenya has exported large quantities of commodities duty-free and quota-free to countries such as Ethiopia, thereby increasing total exports among AGOA members and between members and the US.
The AfCFTA is a trade agreement between African countries to create a single market for goods and services, reduce tariffs and other trade barriers, and promote economic integration among African nations. For example, Kenya has benefited from AfCFTA by exporting commodities like vegetables and fruits duty-free and quota-free to several member countries such as Ethiopia, Eritrea, Ivory Coast, the Democratic Republic of Congo, Zimbabwe, Uganda, Sudan, and Seychelles. However, for a country to be a member of AfCFTA, it must meet specific eligibility requirements, such as progressively eliminating tariffs and non-tariff barriers to trade in goods and gradually liberalising trade in services.
Both AGOA and AfCFTA have the potential to benefit Kenya and other African countries by increasing trade, promoting economic growth and development, and integrating African countries. Nevertheless, the full implementation of AfCFTA is yet to be seen, and the stakeholders must ensure that all members benefit equally. Additionally, it is essential to note that AGOA is a trade preference program. Consequently, not all African countries can take full advantage of it for various reasons, such as a lack of capacity, resources, and infrastructure to meet the required standards.
Kenya-EU Trade Relations: Examining Sectors, Products, Challenges, and Opportunities
Kenya’s trade relations with the European Union (EU) have been significant, primarily in agriculture, livestock, and manufacturing. The country’s exports to the EU are predominantly agricultural and fish products, while machinery, pharmaceutical products, electrical products, and paperboard dominate the EU exports to Kenya. However, challenges such as phytosanitary controls, labelling, packaging, and environmental safety have hindered Kenyan exporters, especially those dealing with vegetables, fruits, and flowers.
To address these challenges, the EU must remove strict measures to ensure that the products shipped to respective nations meet specific standards. Kenya has benefited significantly from its Economic Partnership Agreement (EPA) with the EU, which has improved market access and price stability for particular commodities. The EPA provides duty-free and quota-free access to the EU market for various products. It has helped Kenya improve its export diversification, vital for economic growth and development. Examples of small businesses trading with the European Union include Frutplanet, Berium Group, Jani Fresh Limited, and Mula Export Limited. These companies mainly export vegetables, fruits, herbs, and flowers to EU countries. Kenya’s trade relationship with the EU presents opportunities for the country to increase its revenue levels, but challenges such as stringent measures need to be addressed. The EPA has improved Kenya’s market access and diversification, which is vital for the country’s growth and development.
Conclusion
The East African Community countries’ exports to European and US markets vary significantly, with different commodities being the primary exports. The duty-free and quota-free trade agreements signed between these countries, such as EPA, provide ample opportunities for economic development by allowing increased trade and market access. Despite the benefits of these agreements, Kenyan exporters still face regulatory challenges in exporting their products to the EU market. However, Kenya’s primary exports, such as coffee, tea, and horticultural products, generate significant revenue channelled towards economic development. The imports of manufactured goods such as electronics and pharmaceutical products from EU countries meet the needs of its residents. To fully benefit from these agreements, Kenya needs to comply with the rules and regulations of the agreement. The success of these trade agreements depends on the countries’ willingness to collaborate and ensure that they serve the intended purpose of promoting economic growth and development.
References*
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*These references are part of the authors’ original work,’ The Case of Kenya’s Trade with the European Union’. This article published in Regions e-zine Issue 15 is the authors’ reflective essay.
About the Authors
Judith Akinyi Ogolla is a Postgraduate in African Business Studies (PABS) student, and Paul N. Ngang is the PABS Director. The PABS is a pioneering program at Thomas More University of Applied Sciences in Belgium, the first in Europe. Designed to cultivate professionals with a uniquely African perspective, the program offers a curriculum in African Business that is taught in collaboration with African Embassies and top regional universities. With a focus on cross-cultural management, entrepreneurship, and business, PABS provides graduate students and future managers with the knowledge and skills to navigate the growing demand for world-class professionals in the global marketplace.
