This paper explores the interests of East African Community (EAC) members in the ongoing WTO negotiations on Non-Agricultural Market Access (NAMA) with a view to embedding them in the final NAMA work program. The paper aims to present a fish-lens consideration of issues, covering inter alia: an examination of the relevance of the NAMA modalities; highlighting the implications of Kenya’s position in the NAMA negotiations as a Para 6 country, for the EAC as a whole; and identifying measures that can help address policy-level and institutional challenges.
The East African Community (EAC) has experienced a dynamic period of economic growth. Not only has the region been among the top performing ones globally, experiencing growth at 6.2% from 2004-2013, but all of the member countries experienced real growth. The region now sits on the cusp of a future that could either see it consolidate the significant gains achieved over the past decades, or one that leads to an erosion of these hard-earned gains. In the context of declining trends in agriculture in the region and the members’ ambitions for manufacturing–driven growth, enhanced market access in the goods sector assumes significance. Since tariffs are one of the instruments for achieving trade integration and for enhanced market access, the ongoing Non-Agricultural Market Access (NAMA) negotiations in the World Trade Organisation (WTO) offer a potential avenue to the EAC for furthering its growth agenda.
This paper explores the interests of EAC members in the ongoing WTO negotiations on Non-Agricultural Market Access (NAMA) with a view to embedding them in the final NAMA work program. The paper aims to present a fish-lens consideration of issues, covering inter alia: an examination of the relevance of the NAMA modalities; highlighting the implications of Kenya’s position in the NAMA negotiations as a Para 6 country, for the EAC as a whole; and identifying measures that can help address policy-level and institutional challenges Negotiations on NAMA are more or less frozen in 2008. While a spate of discussions and deliberations have taken place since, there has been little progress on the development of a NAMA work program, despite a clear decision at the Bali Ministerial in 2013 in this regard. A number of issues remain unresolved and arriving at an agreement on the work program will not be easy. Unpacking the framework and the specific modalities reveals that it is a mixed bag in terms of their relevance and value. There is a general agreement on tariff liberalization but issues over product coverage remain unresolved and contentious. Evidence points toward some misconceptions over the extent of risks of preference erosion, while sectoral negotiations are far less straightforward and challenging than tariff reductions. In seeking to harmonise or eliminate tariffs in specific industries or particular areas of that industry, sectoral negotiations call into play a range of political economy influences and interests that enmesh with rational economic analysis and concerns over implications for welfare, market access and competitiveness. With the intent of allowing themselves enough policy space for determining the pace, quality and composition of industrialisation, the stance of EAC and other LDCs and developing countries over sectoral negotiations is understandably cautious.
Despite the vast shadow they cast on market access, firm competitiveness and economic growth, the actual footprint of Non-Tariff Barriers (NTBs) in the NAMA negotiations is very light. With many developing countries focused on tariff reduction and LDCs focused on securing preferential arrangements, NTBs continue to sit on the margins of the NAMA negotiations. This is allowing developed countries to constrain commercially meaningful trade deals. The deleterious effects of high transportation costs; high costs and uncertain supply of electricity; navigating a maze of rules, regulations and procedures; and poor, ponderous border management all add to production costs and weigh down competitiveness. And then there are the costs of complying with international standards and regulations—both public and private—as well as struggling to meet very complex Rules of Origin and eligibility criteria for preferential trade agreements.
Determining the best response to these framework conditions is challenging. At its most simplistic level, since four of the five EAC members being LDCs are exempted from any commitments under the NAMA framework, negotiations under it may be construed to have little relevance for the EAC. Kenya’s inclusion as a Para 6 country means however, that the EAC is involved via proxy. There are other reasons too why the NAMA framework is of significance: the share of agriculture in GDP and exports is on the decline; there is the potential for graduation of the LDCs to developing member countries; and it is important for the EAC to be engaged, even if through a smart, coordinated and targeted form of trade advocacy rather than formal trade diplomacy.
Having analyzed the conditions, constraints and capacities under which the NAMA negotiations are being carried out, at the core of what has been proposed in this paper lies the belief that to make headway in the NAMA negotiations and to fully explore the potential for trade expansion, the EAC needs to adopt a different strategy to what it has been following. With that as the basis, the proposals follow a fairly linear and co-related path:
EAC has been growing fast and has achieved much in terms of convergence of approaches and harmonization of systems. However, if growth is to be sustained and if EAC is not to slip back into a low- growth mode, trade needs to expand and competitiveness of EAC firms needs to improve.
Negotiations on NAMA should therefore be viewed not through the narrow lens of tariff reductions but as part of a broader agenda for change that must place NTBs at the centre of negotiations. Moreover, it is not sufficient for developed countries to offer preferential treatment that is difficult to realize due to trade restrictions and ‘compliance taxes’ that constantly raise the bar in terms of new public and private standards that add to costs and result in denied opportunities for growth to EAC members. However, to do this, the EAC needs to turn the tables in negotiations, calling for an end to normative and one-sided preference programs that are discretionary. Half-hearted measures such as stalling or outright denial of Duty Free Quota Free access need to be discarded. A partnership based on reciprocity and mutual benefit needs to be instituted. This is a desirable objective but to achieve this, there is need of both financial and capacity capital within the EAC. For both, innovative solutions are needed, using approaches that push the EAC’s negotiation capabilities in new, exciting and productive areas. Since the notion of trade as primarily an exchange between sovereign nations represents a lingering anachronism of the old trade narrative, the EAC needs to understand and engage with the private sector, not just the WTO.
As far as Kenya is concerned, its position as a Para 6 country in the NAMA framework does not detract from the need for it to adhere to and promote the principles, strategic approaches and innovations proposed for the EAC as a group. On the specific issue of committing to expansion of the binding tariff base to 70% and the lowering of tariff to 30%, this paper argues that since the process of fulfilling this commitment is gradual and the requirement of expanding the binding coverage to 30% does not specify which tariff lines to cover or leave unbound, there is sufficient policy space available to Kenya. However, the difficulties and sensitivities in identifying industries, sectors and products to protect with regard to the unbound component are duly acknowledged. In this respect, as discussed earlier, the identification process may be based on a multi-factor assessment paradigm which can help Kenya arrive at the right choices.
One very positive aspect of the Kenyan economy and one in which it leads other EAC members is in the services sector and in particular in information technology. As home to some of the more innovative— indeed game changing—initiatives that have championed the cause of digital democracy on the one hand and providing business solutions to developmental challenges, Kenya can leverage the entrepreneurial spirit, creativity and business savvy of its young innovators to benefit the EAC and also to view this sector from an export angle. Digital platforms such as Ushahidi and mPesa are global frontrunners and offer great hope for Kenya as a hub for using the power of innovation and design thinking. To underscore the point, only 4 million Kenyans have bank accounts, but 10 million people in the country now use the M-PESA money transfer service. TradeMark East Africa using software developed by Kenya’s Ushahidi has initiated an SMS-based system that allows businesses to report nontariff barriers via mobile phones.
It is examples such as these, of private sector solutions to public sector problems that need to be replicated to facilitate trade in Kenya and in the EAC.