The U.S.-Kenya STIP in Light of Other Approaches to Trade with Africa

United States trade representative Katherine Tai was in Nairobi, Kenya last week, from July 17 to 19, on an official trip to further cement trade relations between the United States and Africa. Ambassador Tai co-led a council meeting for the U.S.-East African Community Trade and Investment Framework Agreement but also used the opportunity to further negotiate other trade instruments currently in the works. Ambassador Tai met with senior Kenyan government officials, members of Kenyan civil society, and the private sector to advance the Trade and Investment Pillar of the United States-Kenya Strategic Partnership (STIP), which the two countries launched last year. The STIP is set to address approaches to agriculture, anti-corruption, and micro-, small-, and medium-sized enterprises (MSMEs) together with service regulation among other focus areas. The current U.S. stance on trade tends to avoid or leave out talks surrounding traditional trade agreement tools like tariffs so all eyes were on the two governments to see the types of commitments that could be finalized without the use of negotiations typical of such meetings. Ambassador Tai continuously called for the two countries to increase their engagements in the coming months.

In the wake of Covid-19, the climate crisis, and recent shifts in geopolitics, countries are ramping up efforts to secure supply chains of critical goods, including minerals. Multinational corporations and governments worldwide are seeking new partnerships to ensure economic resilience in the face of impending financial recessions. The largest economies in international trade, including the European Union and China, are taking a wide array of approaches, all with different consequences for businesses trading across borders. The African continent has been a focal area for such endeavors because of its abundance of natural resources. Kenya signed an Economic Partnership Agreement (EPA) with the European Union in June 2023, featuring market access clauses and binding commitments between the two economies. There is a debate among trade and investment experts about whether the United States' decision to establish a new trade framework without definitive market access terms will have lasting mutual benefits for both economies in the long run. However, the approach leaves room for further negotiations in existing legislative instruments like the African Growth and Opportunity Act (AGOA), lapsing in 2025. A closer look at two major trade approaches Kenya has welcomed thus far with the European Union and the United States reveals that simply including low- or zero-percent tariff rates in a bilateral agreement will not automatically ensure free, fair, and sustainable trade between the two parties involved. Alternative approaches can address nontariff barriers to trade. 

Q1: In what ways is Kenya important to world trade?

A1: Kenya remains among the world's fastest-growing economies to date. Among Africa's 10 largest economies, the country serves as a port of entry into numerous other markets. Kenya is a leading member of the East African Community customs union and the larger African Continental Free Trade Area, which both house countries known for their critical mineral endowments key to many global supply chains dependent on copper, lithium, nickel, and cobalt. Kenya's World Bank Ease of Doing Business score has risen from 58 to 73 out of 100 from 2016 to 2020, meaning that the country's economy has significantly decreased the regulatory burdens placed on businesses to operate in the country over recent years. The East African nation has also taken on a leadership role in the Coalition of Trade Ministers on Climate initiative, launched with the European Union, Ecuador, and New Zealand. Kenya has also become an increasingly desirable destination for investments, particularly in the green energy and transportation sectors. As a result, the rest of the world has begun developing various frameworks to best harness the country's resources and increase the competitiveness of their respective economies. China, for instance, has focused its approach to trading with Kenya in the past decade through infrastructure investment projects and steel product exports to the country worth billions of dollars. The European Union, in turn, aims to strengthen its economic relations with Kenya as part of a Global Gateway plan, in arguable competition with the Belt and Road initiative. This explains why United States officials are also seeking new opportunities to establish a stronger economic presence in the Kenyan market.

Q2: What is the EU trade approach with Kenya?

A2: The EPA is an example of a duty-free approach that strengthens the trade relations between the two regions but still falls short of addressing significant nontariff barriers. Once ratified, the EPA will grant immediate duty-free and quota-free access to goods from Kenya to all 28 EU markets and a gradual 25-year freeing of the Kenyan market to cater to the nation's development interests.

Second only to China, the European Union is Kenya's largest trading partner, with €3.3 billion ($3.61 billion) worth of trade volumes flowing between them in 2022. The Economic Partnership Agreement forms part of Europe's “Comprehensive Strategy with Africa” to increasingly achieve free market access between the two continents throughout their green and digital transitions.

The negotiations concluded during an official ceremony in Nairobi with European Commission executive vice president and commissioner for Trade Valdis Dombrovskis, cabinet secretary of Kenya's Ministry of Investments, Trade, and Industry, Moses Kuria, all in the presence of Kenyan president William Samoei Ruto on June 19, 2023. 

The agreement features binding commitments to European interests, including for Kenya to implement the Paris Agreement on climate change, a review clause to strengthen sustainability provisions, as well as obligations to combat illegal wildlife trade, logging, and unregulated fishing. The EPA also features a new dispute settlement procedure for instances where either country fails to meet its green commitments. However, the biggest barriers to European market entry remain their stringent labeling requirements, rules of origin, as well as their sanitary and phytosanitary food and plant safety regulations. Other trading partners to the European Union, including the United States, frequently cite these as concerns.

Kenya is a major exporter of agricultural products, including tea, coffee, fruits, vegetables, and flowers. In light of this, the EPA features a “sensitive product” exclusion wherein specific Kenyan products will be exempt from tariff cuts. Both countries will also still be allowed to initiate safeguards in the case of sudden rises in imports from either side. Currently, Kenyan imports from Europe remain primarily machinery and chemical products. 

The leading European importers of Kenyan products include the Netherlands, Germany, and France. The EPA is an opportunity to increase the trade diversification of Kenyan businesses to other parts of Europe at face value. The European Union agreed to provide capacity-building infrastructure to better integrate Kenyan products into various European value chains. However, questions are still being raised concerning the level of protection and how quickly infant industries or small-scale agribusinesses that comprise the vast majority of the Kenyan GDP will be integrated into said infrastructure. The agreement includes customs-related provisions in an attempt to address the issue, and the European Commission released a statement promising a new protocol on rules of origin within the first five years of implementing the EPA. Farmers are still indirectly being told to wait and see in this regard. In the meantime, Kenya is moving forward with its UK and United Arab Emirates deals, which were similarly agreed to in 2020 and 2022, respectively. Waiting too long for the European Union to lower its nontariff barriers decreases incentives for Kenyan businesses and government officials to cater to European commitments. This explains, at least in part, why U.S. trade officials have adopted a different approach. 

Q3: How does this compare to the U.S.-Kenya partnership?

A3: Contrary to the EPA, the Office of the U.S. Trade Representative is opting for tariffs to be left out of negotiations entirely—this is in line with the current United States stance on trading with the rest of the world. The United States and Kenya launched the STIP on July 14, 2022. STIP stems from the original free trade agreement negotiations from 2020 that a new U.S. administration reframed. Similar to agreements Kenya has signed with other countries, the United States has cited increasing investment, promoting sustainable and inclusive economic growth, endorsing labor rights and consumer rights, as well as benefiting businesses all as primary objectives. 

After the third iteration of the U.S.-Kenya Bilateral Strategic Dialogue in April 2023, U.S. secretary of state, Antony Blinken and Kenyan cabinet secretary for foreign and diaspora affairs, Alfred Mutua discussed strengthening the bilateral relationship across five pillars of the partnership. Included among the pillars is Economic Prosperity, Trade, and Investment, under which 12 issues have since been identified as focus areas, including agriculture, anti-corruption, trade facilitation and customs procedures, ensuring the success of MSMEs, environment and climate change action, as well as digital trade. The two countries have committed to seeking measures that improve food security and farmer livelihoods while addressing climate change concerns and fostering resilient digital infrastructure. The countries have also emphasized the need to allow access to information for mutual interests through roundtable discussions to exchange technical best practice ideas and resources. 

The United States has decided to negotiate all of the above without corresponding tariff agreements. Members of the private sector and civil society have raised concerns about the practicability of such an approach; tariffs have long been viewed as ultimate indicators of market access and incentives for businesses to lower transaction costs across borders. Although members of the private sector and senior United States officials agree that nontariff barriers can lead to economic development in new ways, there is still a call for an elimination of duties on goods such as agricultural products, including the 25 percent duty on U.S. pork. The U.S. average effective applied tariff on Kenyan imports was 0.4 percent in 2021. Kenya's agriculture sector presents the highest barriers to United States exports, with an average tariff of 20.3 percent and still relatively high tariffs on dairy (51.7 percent), animal products (23.1 percent), and cereals (22.2 percent). The above can however still be addressed in upcoming AGOA negotiations.

Q4: What nontariff barriers are being addressed in the STIP to lower costs for U.S. businesses?

A4: As stated above, there will be no changes to tariffs directly as a result of the United States-Kenya Partnership, but rather a series of different nontariff barrier-related projects as the negotiations continue. Examples include the digital trade issue wherein U.S. companies are calling on government officials to negotiate the removal of Kenya's Digital Service Tax (DST), as the measure discriminates against United States companies and undermines ongoing multilateral efforts in the OECD/G20 Inclusive Framework to address tax challenges of the digitalizing global economy. Kenya's 2019 Data Protection Act has also raised concerns regarding cross-border data flows, and so officials are seeking to negotiate measures that can be implemented to create more certainty around such areas for future investments.

Other ongoing concerns for the United States include the broad ban on genetically engineered food and feed products in Kenya. The African nation is also not a member of the World Trade Organization Government Procurement Agreement, so it grants exclusive preference to Kenyan companies for procurements under roughly $450,000. With ongoing negotiations around the STIP, heeding to calls for public participation or comment is a way to protect business interests throughout these new partnerships.

Conclusion

With continued engagements and agreements that global economic powerhouses are calling on Kenya to become a part of, the East African nation is gaining greater bargaining power. Considering the different European Union and United States frameworks outlined above, it is clear that not all approaches to trade with Nairobi—or the rest of Africa—are the same. There are various avenues to address business concerns in bilateral negotiations other than changing tariff rates, and some potentially have longer-lasting effects. The question is which avenue is a better approach in our current economic climate. Ambassador Tai left Kenya last week committing to continue negotiating terms that promote United States interests while offering competitive trade and investment opportunities to African countries through nontariff measures. Relevant private sector actors should be seeking to participate in STIP developments and remaining attentive to such visits, including the AGOA Forum set to take place in South Africa later this year. Such engagements provide better understanding around how to secure and strengthen diversification strategies around the globe.

Joyce Bongongo is a research intern with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. William Reinsch holds the Scholl Chair in International Business at CSIS.