Going Solo: What Is the Significance of a U.S.-Kenya Free Trade Agreement?
March 18, 2020
In February, President Donald Trump and Kenyan president Uhuru Kenyatta announced their intent to negotiate a bilateral free trade agreement (FTA). On March 17, President Trump formally notified Congress of its intention to move forward with negotiations as the United States attempts to secure its second FTA with an African country. The original announcement of a bilateral negotiation triggered several critiques from members of the African Continental Free Trade Agreement (AfCFTA) and East African Community (EAC), who feel frustrated by Kenya’s decision to negotiate alone. Kenya has downplayed these regional risks and aims to permanently secure the benefits of the African Growth and Opportunity Act (AGOA), further its economic ambitions in Vision 2030, and solidify security cooperation between the two countries. While Kenya was elevated to a strategic partner in 2018 and is important to counterterrorism efforts against al Shabaab, the motivations for the United States seem more symbolic than economic. Kenya offers the United States an opportunity to develop a replicable model for future U.S.-Africa trade deals with limited risk in a country where China has tried and failed to secure an FTA. Though it is unlikely a final agreement will be reached this year, the outcome of a U.S.-Kenya FTA will have significant consequences both to intra-African trade as well as countering China’s influence in Kenya.
Q1: Why Kenya?
A1: In January 2018, U.S. Trade Representative Robert Lighthizer stated, “I think that before very long we're going to pick out an African country, properly selected, and enter into a free trade agreement with that country . . . And then that, if done properly, will become a model for these other countries.” The decision to select Kenya seems to have been based not on its importance economically but rather a combination of geostrategic significance, Kenya’s self-initiative to strike a deal, and the possession of leverage for negotiations. Total two-way trade in goods between the United States and Kenya amounted to only $1 billion in 2018. Neither imports from nor exports to Kenya rank among the top five of U.S. trading partners in sub-Saharan Africa. Kenya also ranks as only the 98th largest trading partner for the United States. As Scott Eisner, president of the U.S.-Africa Business Center at the U.S. Chamber of Commerce, described, “It really is who was willing to raise their hand and who had the most political will behind it.”
Chart 1: U.S. Exports to Kenya versus Africa
In addition to the relatively small amount of trade that occurs between the United States and Kenya, top U.S. imports from Kenya are relatively low-value products, such as apparel, fruits, nuts, and coffee. Major U.S. exports to Kenya, on the other hand, are relatively high value-added products like aircraft and machinery.
For Kenya, there are several motivations for raising their hand. First, more than 70 percent of Kenya’s exports to the United States are duty-free under AGOA, a key U.S. preferential trade program set to expire in 2025. The United States consistently ranks as one of Kenya’s top export markets, and Kenya has stated on multiple occasions the importance of securing duty-free access to the United States ahead of AGOA expiring. Of the six EAC member countries, Kenya is the only one not designated on the UN list of Least Developed Countries (LDC). Under the Generalized System of Preferences (GSP), a separate trade preference program, LDC countries receive additional access to export goods duty-free to the United States. Though GSP excludes some of Kenya’s top exports such as textiles and apparel, products covered by AGOA, many of Kenya’s agricultural exports would be duty-free if it were an LDC country. As a result, Kenya faces a greater risk than neighboring EAC countries should AGOA expire without a replacement. As the United States is an important security partner and Kenya is lagging far behind the goals it set in 2008 for Vision 2030, such as an average annual GDP growth of 10 percent, Kenya has several incentives for negotiating with the United States.
Q2: What would be included in a U.S.-Kenya Trade Agreement?
A2: Following the announcement of U.S.-Kenya negotiations, Lighthizer stressed that his goal is “negotiating and concluding a comprehensive, high-standard agreement with Kenya.” Submitting a formal notification to Congress of the administration’s intent to negotiate an FTA with Kenya confirms that the administration will follow procedures set out in the 2015 Trade Promotion Authority (TPA) law and is the clearest signal the administration is seeking a robust deal, not a “mini-deal” or phased negotiation akin to the arrangements with China and Japan. TPA includes a long list of objectives Congress has mandated the administration pursue in trade negotiations. The objectives cover issues beyond tariffs and quotas, including services, investment, intellectual property, labor, the environment, nontariff barriers, dispute settlement, digital trade, and state-owned enterprises. If the administration maintains its intent to negotiate a comprehensive agreement and establish a new model, it is unlikely a deal could be concluded and sent to Congress for a vote this year. On the other hand, once negotiations begin, the administration could decide to seek an agreement in phases, as it did in the case of Japan, which might mean that no congressional action would be necessary for a modest first phase.
While Kenya and the United States both wanted a bilateral negotiation, they are also aware of the larger repercussions of the United States using this agreement as a model for the future. The priorities and compromises Kenya could make would have significant implications on future deals. Though no details have emerged thus far of what will be included, the second U.S.-Kenya Trade and Investment Working Group meeting in November gave some indication as they discussed “services, digital trade, intellectual property, agriculture, environment, customs and trade facilitation, technical barriers to trade, labor, and state-owned enterprises.” Of these nine areas, the three topics that will be watched most closely are the agreement’s handling of labor, the environment, and customs and trade facilitation.
Given Kenya’s labor record, the United States will have to take a novel approach to labor negotiations, perhaps through technical assistance, a work plan, and phased-in obligations. Negotiations would not only need to address the issue of low wages but child labor laws as well. Kenya is one of only nine countries that have not ratified the UN Optional Protocol on the Sale of Children, Child Prostitution and Child Pornography, for instance. Child labor is also prevalent in Kenya’s agricultural industry and is used for other low-wage, low-skill tasks like scavenging. Kenya does have laws and institutions to address child labor but faces challenges in enforcement due to funding and capacity. To address this, the United States and Kenya could include a work program in the labor chapter of a bilateral FTA, which would include U.S. technical assistance to build Kenya’s capacity to address child labor and quantifiable milestones that Kenya would be required to meet to maintain FTA benefits.
In addition, the environment will also be an important aspect of the agreement. Like the United States-Mexico-Canada Agreement, the environmental chapter will ideally include steps to combat wildlife trafficking, illegal logging and fishing, fisheries subsidies, and marine pollution. This will be especially important if fisheries are not addressed during the next World Trade Organization ministerial conference. How a bilateral FTA handles tariffs, customs, and trade facilitation may be the largest question mark. As a member of the EAC customs union, Kenya is bound by the group’s common external tariff. It’s unclear how bilateral talks in this area will unfold.
Q3: How would a bilateral U.S.-Kenya trade deal affect other trade agreements in Africa?
A3: The landscape for negotiating a bilateral agreement with Kenya has become far more complicated in the last several years. In March 2018, the AfCFTA was signed by 54 African countries. The agreement entered into force for 29 of those countries (including Kenya) in May 2019, and on July 1, 2020, the AfCFTA will take full effect. While the AfCFTA does not establish a customs union, it is considered a stepping-stone toward an African customs union. Today, African Union (AU) countries are increasingly concerned that the U.S. attempt to use Kenya as a “model” will not reflect the needs of other AU members and could upset regional integration. Shortly after Kenya’s decision to move forward on negotiations with the United States, former deputy chairperson of the African Union Commission and the first secretary-general of the Common Market for Eastern and Southern Africa Erastus Mwencha remarked, “Under the AU, the African heads of state have discouraged member States from entering into bilateral free trade negotiations with third parties because they jeopardize the AfCFTA.” Mwencha has also argued that Kenya would be able to negotiate a far better deal if it coordinated with other members. Kenya disagrees, setting up a major test for the AfCFTA before it takes full effect later this year.
Though the AfCFTA compounded the problem, bilateral negotiations with Kenya were already bound to be difficult. Due to Kenya’s obligations as a member of the EAC, there are two main challenges facing a bilateral agreement. First, Article 37 of the EAC Customs Union protocol, “Trade Arrangements with Countries and Organisations Outside the Customs Union,” states that countries are required to send the EAC secretary general the terms of any trade deal once it “intends to conclude or amend an agreement” with a third party for review and comments. Based on this protocol, critics have argued that Kenya’s membership in the EAC customs union should prevent it from entering an FTA with the United States. Meanwhile, others, such as Kenya’s former trade cabinet secretary Peter Munya, have pointed out it is only obligated to notify EAC members of an agreement and that no agreement has been proposed at this stage.
An additional criticism has been based on Article 37 of the EAC Common Market protocol, “Co-ordination of Trade Relations,” as it states that countries are meant to “adopt common negotiating positions in the development of mutually beneficial trade agreements with third parties; and promote participation and joint representation in international trade negotiations.” Both these articles, however, remain vague, and the dispute mechanism options defined in Article 54 of both the customs union and common market are also limited. As a result, Kenya’s decision to pursue negotiations alone is primarily a violation of the general tone of the EAC rather than a substantive deviation.
Kenya’s continued pursuit of a deal with the United States despite these regional frustrations is also based on history and its experience during the EU Economic Partnership Agreement (EPA) negotiations between the European Union and EAC. While Kenya and Rwanda ratified the EPA in September 2016, the agreement stalled with other EAC members and remains unsigned. While the European Union has provided Kenya with duty-free access on an interim basis, and the United States has continued to approve Kenya’s eligibility for AGOA, Kenya does not want to remain beholden to the needs of other EAC member countries and U.S. goodwill for trade.
Given these concerns, there are two main outcomes to consider for how a bilateral U.S.-Kenya trade deal would affect these trade agreements in Africa. The first is that this agreement would further discourage intra-regional trade in Africa and lead to a gradual disintegration of these multilateral bodies. This is the main concern and frustration voiced by the EAC and AfCFTA members. Another potential outcome could be that this trade deal truly does become a successful model that other countries will want to emulate. It is possible, though improbable, to imagine the EAC adopting the reform measures that Kenya would implement domestically as a result of this agreement. The most probable outcome is somewhere in the middle and will depend on what is ultimately included in the agreement.
Q4: How much of this is driven by China?
A4: China has been attempting to negotiate a free trade agreement with the entire EAC bloc since 2016. Chinese ambassador to Kenya Wu Peng stated in 2019, “If we want a new, favorable trade agreement for Kenya, we must consider the whole area . . . we are ready to talk with the EAC together.” While China has pursued stronger ties, Kenya has been working to diversify and has been the only EAC country to oppose negotiating a trade agreement with China. Chris Kiptoo, Kenya’s trade principal secretary has previously stated, “A preferential trade agreement with China is what we prefer . . . an AGOA type of trade,” citing the lopsided trade balance between the two nations. Kenya imports more than double from China what it imports from any other country. Kenya is also China’s fifth largest export market in Africa. Yet Kenya ranks only 29th in Africa for exports to China. Given this imbalance, Kenya is eager to decrease their reliance on Chinese imports.
Countering China’s growing influence in Africa has been a clear goal of the Trump administration. In December 2018, National Security Advisor John Bolton introduced the Trump administration’s Prosper Africa initiative. Judd Devermont, the director of the CSIS Africa Program, has expressed concerns that the initiative is too focused on countering Chinese influence rather than developing an Africa-specific policy. Prior to Prosper Africa’s launch, Lighthizer made a similar case for a model FTA, stating, “We're only a few years away from that [Africa] being the population center of the world, and if we don't figure out a way to move them right then China and others are going to move them in the wrong direction.”
Yet, for both Kenya and the United States, hedging against Chinese influence may not be the primary motivation behind a deal. Despite some of the rhetoric, there is nothing on the table so far that will restrict Kenya from doing business with China if it pursues an FTA with the United States. In a podcast with Judd Devermont, the CSIS Scholl Chair discussed a strategy that would utilize Chinese investments in infrastructure to leverage U.S. economic strengths in services and advanced manufacturing. Kenyan president Uhuru Kenyatta has also rejected a zero-sum framework for commercial relations with the United States and China. During his recent visit to the United States, he said, “We don’t want to be forced to choose . . . we want to work with everybody, and we think there is opportunity for everybody.” While both the United States and China still see that opportunity, regional allies in the EAC and AfCFTA remain concerned as Kenya’s decision to go it alone risks leaving them behind.
Jack Caporal is an associate fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. John Hoffner and Sanvid Tuljapurkar are interns with the CSIS Scholl Chair.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2020 by the Center for Strategic and International Studies. All rights reserved.