AFRICA AND THE WORLD TRADING SYSTEM: A CASE STUDY
OF KENYA
BY
FRANCIS M. MWEGA
ECONOMICS DEPARTMENT
UNIVERSITY OF NAIROBI
and
KEFA L. MUGA
MINISTRY OF FINANCE, KENYA
MARCH 1999
Final Report Prepared for an AERC Collaborative Project on Africa and the World
Trading System.
1.
Introduction
There is a consensus in the economic literature that the performance of Kenya's export
sector has been quite poor and exports have grown more slowly than the economy as a
whole. While the trend real GDP grew at an average rate of 4.7% in the first three decades
of independence (1964-1993), the trend growth in the volume of exports was only 1.6%
(Mwega, 1995). More recently, as Table 1 shows, the export performance declined
significantly in 1989-1991 (average 14.5% of GDP), before rebounding in 1993-1996
(average 23.3% of GDP).
Kenya's exports can be divided into traditional and non-traditional (NT) exports. The
World Bank (World Development Indicators, 1997) defines traditional exports to include
the top 10 three-digit export items in a base year, unless they total less than 75% of exports,
in which case more items are added until 75% is reached. Based on this definition, Kenya's
traditional exports (taking 1980 as the base year) comprise the following ten products
accounting for 83.3% of total exports: petroleum products (33.3% of total exports); coffee
(22.2%); tea and mate (11.9%); crude vegetable materials n.e.s (3.2%); sugar and honey
(2.7%); other crude minerals (2.3%); preserved fruit and fruit preparations (2.2%); lime
cement and fabricated construction materials (2.1%); raw hides and skins (except fur
skins, 2.0%); and fruit and nuts (not oil nuts), fresh or dried (1.4%).
We utilize a narrower definition (Blackhurst and Lyakurwa, 1997) that includes as
traditional exports items that account for more than 3% of total exports in the base year.
Traditional merchandise exports therefore include petroleum products (SITC 334), coffee
(SITC 071), tea and mate (SITC 074) and crude vegetable materials n.e.s (SITC 292). This
leaves many of the horticultural products apart from crude vegetables among NT exports.
The first three products are therefore by far the dominant traditional commodity exports,
although the contribution of petroleum products to forex earnings is small as the country
mainly re-exports imports after processing.
Table 1 shows the evolution of traditional exports based on the second definition. The share
of traditional exports in the national income declined from 15.4% ($931 million) in 1980 to
5.3% ($366 million) in 1989 before increasing to 12.2% ($972 million) in 1996. The
proportion of traditional exports in total exports therefore declined from 70.0% in 1980 to
47.6% in 1996, reflecting a diversification of Kenya's export basket.
In the case of coffee and tea, access to developed markets has not been a major constraint.
A large proportion of these products is exported to the European Union where the applied
tariff and non-tariff barriers have been low1. The export volumes of coffee and tea
generally expanded in the 1980s and 1990s, coffee marginally from an average 86,994
metric tons in 1979-1983 to an average 94,976 metric tons in 1994-1996 and tea about twoand-a-half times, from 84,905 metric tons in 1979-1983 to 218,336 metric tons in 1994-1996.
Their export prices have generally declined. The price of coffee, for example, declined from
$2.95 per kg in 1979-1983 to $2.90 per kg in 1994-1995 while that of tea declined from
1
$1.81 to $1.64 in the two periods..
Table 1: Exports performance in Kenya, 1980-1996a
Total
Total
Traditional
Traditional
NT exports NT
exports as exports in $ exports as % of exports in $
as % of
exports in
% of GDP million
GDP
million
GDP
$ million
1980
21.7
1328.95
15.4
930.75
6.3
398.20
1981
19.7
1386.13
13.3
936.33
6.4
449.80
1982
18.4
986.81
13.1
703.81
5.3
283.00
1983
19.1
949.10
13.1
650.90
6.0
298.20
1984
19.6
1041.11
14.4
766.17
5.2
274.40
1985
17.9
960.69
13.0
694.69
4.9
266.00
1986
29.7
1860.48
13.7
858.48
16.0 1002.00
1987
19.3
1327.08
8.6
591.68
10.7
735.40
1988
20.8
1445.76
9.0
626.16
11.8
819.60
1989
12.1
841.4
5.3
365.56
6.8
465.90
1990
14.6
1013.89
9.1
634.09
5.5
379.80
1991
16.7
1131.34
9.9
671.14
6.8
460.20
1992
19.2
1298.59
9.0
564.19
10.2
644.40
1993
24.7
1029.20
12.0
499.40
12.7
529.80
1994
24.5
1853.05
11.7
886.05
12.8
967.00
1995
24.6
1691.06
11.6
794.46
13.0
896.60
1996
25.5
2039.60
12.2
971.84
13.4 1067.80
a
Data for 1989 were reported for the first nine months of the year and were therefore adjusted by a factor of 1.33. In general, data on
total exports may not conform with those from the national accounts.
Source: Kenya, Annual Trade Report, various issues.
Both the volume and the export price of petroleum products also declined in the 1980s and
1990s. The average volume fell from 814 metric tons in 1979-1983 to 444 metric tons in
1994-1996 and the average price from $0.23 to $0.19 per litre2.
The relatively poor performance of Kenya's traditional exports suggests that Kenya should
focus its export policy on non-traditional exports if it ever hopes to build a dynamic export
sector. Table 1 shows that NT exports grew much faster (20.1%) than traditional exports
(7.4%) in the 1980s and 1990s. There are four clear episodes: 1980-1985 when the share of
NT exports was 5.7% of GDP; 1986-1988 when it averaged 12.8%; 1989-91 at 5.8% and
1992-96 at 12.4%. According to Landell-Mills and Katz (1991) and UNDP/World Bank
(1993), this export performance was mainly driven by domestic policies. The first half of
the 1980s experienced a large decline in NT exports due to restrictive trade policies. The
2
quantitative restrictions imposed in 1980 and 1982 resulted in an increase in effective rates
of protection that shielded inefficient activities and tended to discriminate against products
in which Kenya had a comparative advantage such as food-based manufacturing. The
system was also discretionary and non-transparent, making costs, competition in the
domestic markets, and access to inputs difficult to predict. The two studies also attribute
the high share in 1986-1988 to a massive increase in the volume of horticultural exports.
The good performance in 1992-1996 similarly overlaps with a trade liberalization episode,
and has been explained by "removal of bureaucratic bottlenecks and availability of foreign
exchange" (Kenya, Economic Survey, 1996).
Enhanced export diversification would reduce the country's vulnerability to external
shocks and the commercial risks arising from reliance on a few exports. It can also be
expected to reduce export revenue instability and hence promote economic growth (Jebuni
et al., 1992). The potential for learning-induced productivity improvements may also
increase with the number and variety of export products. According to Mayer (1996), the
primary objective of an export diversification policy should be to upgrade a country's
production and export pattern by successfully moving up the technological and skill ladder
of its products, consistent with the country's human and physical resource endowments,
while taking into account dynamic demand potentials in the world markets.
This paper analyses the role of improved market access in enhancing Kenya's nontraditional exports. It specifically investigates the implications for market access of the
Uruguay Round of General Agreement on Trade and Tariff (GATT) signed in 1994. This is
a most comprehensive series of multilateral trade reforms in several areas, including tariff
reforms; agricultural policy reforms; winding up of the Multi-Fibre Agreement (MFA);
trade in services; intellectual property rights; and trade related investment measures
(Blake et al., 1996). In addition, the World Trade Organization (WTO) was created as a
standing body to oversee trade liberalization and maintain the order and due process of the
world trading system.
The rest of the paper is organized as follows. Section 2 briefly reviews the major domestic
policies, particularly those implemented in the 1990s, that impinge on Kenya's capacity to
take advantage of the Uruguay Round and WTO arrangements. Section 3 analyses the
likely impact of the Uruguay Round and WTO arrangements on non-traditional exports
market access. Section 4 discusses Kenya's capacity for compliance and defense of rights
under these arrangements, and Section 5 examines country priorities for future trade
negotiations. Section 6 analyses the likely impact of the Uruguay Round and WTO
disciplines on foreign direct investment and manufactured exports in Kenya. The paper
concludes in Section 7.
2.
Domestic policies that impinge on Kenya's capacity to take advantage of market
access abroad.
Kenya has implemented numerous trade, export and allied macroeconomic policies in the
3
1980s and 1990s that impinge on its capacity to produce for export3.
Tariffs
Economic reforms in the 1980s started with a 10% tariff surcharge that was imposed on all
imports and tariff increases on over 200 items. These reforms were continued in 1981 with
tariff increases ranging from 2% to 90% imposed on about 1,400 items. There were also
tariff reductions on about 20 items used mainly by export-oriented industries.
The tariff reductions started in 1981 were gradually extended in the 1980s and 1990s to
more import items, particularly under SAL2 in 1983-1984 and in 1987-1991 under the
World Bank industrial sector adjustment credit. The number of tariff categories, for
example, was reduced from 25 to 11, while the maximum tariff rate was reduced from
170% to 70% over 1987-1992. In the budget speeches of 1994-1996, the maximum rate was
reduced to 35% and the number of bands to five. The average unweighted tariff rate
declined from 41.3% in 1989/90 to 34% in 1992/93 (UNDP/World Bank, 1993).
Tariff reforms implemented in the 1980s and early 1990s had some impact in reducing the
effective tariffs. The collected tariff rates increased to a peak in 1982 and then generally
declined over the rest of the period (Mwega, 1995).
Quantitative restrictions
Since the BOP crisis of 1971, Kenya has extensively used administrative controls to manage
the balance of payments and to provide protection to some industries. Until their abolition
in 1993, quantitative import restrictions in Kenya were mainly administered through
import licensing. This was pervasive. The number of import products under license
increased from 228 in 1972 to 2,737 in 1985, and in the mid 1980s the Import Management
Committee was processing an average of 2,000 applications for foreign exchange per week
(Dlamini, 1987).
Essential products were put in the less restrictive license categories while the non-essential
products were put in the more restrictive import categories or completely banned. Import
liberalization essentially involved a shift of items from the more restrictive categories to the
less restrictive categories. Until the abolition of import controls in May 1993, the schedules
were published annually.
Some progress was made towards relaxation of quantitative restrictions, with an arbitrary
mechanism such as the "no objection" certificate eliminated in June 1980, while import
items in the less restrictive categories were increased. The share of quota-free imports
increased from about a quarter in 1980 to a half in 1987 (Mwega, 1995).
The number of import items under quantitative restrictions further declined to 22.1% in
1990/91, with the average lag between license application and foreign exchange allocation
4
reduced from six months to about three weeks (World Bank, 1990). The coverage of the
restricted imports dropped from about 15% in 1990/91 to 0.2% in 1991/92 (UNDP/World
Bank, 1993).
Reforms in the direct allocation of foreign exchange were continued in the 1990s. In August
1992, a 100% retention scheme for exporters of 'non-traditional' products was introduced;
it was extended (at 50%) to coffee and tea (November 1992) and tourism (February 1993).
The policies on retention accounts and the inter-bank foreign exchange market were
reversed in March 1993, however, to contain the inflationary spiral following the floating
of the shilling. The government accused the retention account holders of hoarding foreign
exchange for speculative purposes when the country faced a serious balance of payments
problem.
In May 1993, these reforms were re-introduced with the retention accounts at a rate of
50% (increased to 100% in February 1994) for exporters of both goods and services (so
long as the proceeds were used or sold within three months, after which they would be sold
to the central bank at the official rate; the rate was later unified with the inter-bank rate).
Import licenses were abolished except for a short list of items that require prior approval
for security, environmental and health considerations. Importers were, however, still
required to provide documentary evidence of shipments or of actual importation and the
sellers' final invoice before commercial banks could make the appropriate payments (CBK,
1993). In addition, all imports worth over Ksh100,000 f.o.b were still subject to preshipment inspection and a clean report of finding issued by a CBK-approved inspection
agency.
Direct export promotion policies
By the late 1970s, it was generally agreed that the impact of the manufactured exports
subsidy introduced in 1974 was quite limited because the rate was quite low (at 10% of the
f.o.b value of goods manufactured in Kenya with a local value-added of at least 30%) and
payments were subjected to much delay. In the 1980s, one-third to two-thirds of the total
subsidy payments accrued to four firms, while the payments comprised only about 5% of
manufactured exports, hence the subsidy had minimal incentive value (World Bank, 1990).
In effect, the subsidy was treated as a windfall by those few firms that received it rather
than as an incentive for increased exportation.
There were numerous attempts to rectify this situation. For example, the rate was increased
to 20% in 1980. Because of BOP problems, however, the scheme was suspended in June
1982. The subsidy was reintroduced in December 1982 at the rate of 10% with a bonus
(incremental) rate of 15% to new exporters and those who increased their exports in the
previous year. This bonus rate was abolished in 1985 and the basic rate raised to 20%. In
1986 the items eligible for export compensation were reduced from 2,000 to 700, but later
increased to 1,260. In 1990, exporters were permitted to process their claims through
commercial banks to speed up payments while export firms were given the option to claim
5
import duty/VAT exemptions on imported inputs rather than export compensation.
The manufactured exports subsidy was eventually abolished in September 1993, to be
replaced by a duty/VAT remission scheme for intermediate inputs.
Other direct export promotion policies have included the following:
•
Attempts to strengthen government departments involved in export promotion and
to expedite the handling and processing of the relevant export documents. The 19972001 development plan argues that export promotion is a government-led activity,
which it charges to the Export Promotion Council (EPC) established in 1992. The
role of EPC is to organize and participate in trade fairs and exhibitions, to sponsor
contact promotion programmes and sales missions, and to carry out market
opportunity surveys.
•
Support for regional and multilateral trade arrangements including the Treaty for
East African Cooperation (in 1993), the Common Market for Eastern and Southern
Africa (COMESA), the Lagos Plan of Action, and the WTO.
•
Manufacturing-under-bond (since 1989) whereby production is done exclusively for
the export market, simplifying the export documentation process and facilitating the
importation of inputs.
•
Establishing export processing zones (EPZs). EPZs were legislated in 1990 and since
then 13 EPZs have been gazetted in Nairobi, Mombasa and Nakuru (Kenya,
Development Plan 1997-2001). Of these 12, are privately promoted while one at Athi
River was developed by the government with World Bank support. Since the EPZ
legislation, 54 manufacturing projects have been approved but only 20 are
operational, which the Plan attributes to a shortage of industrial space for rent. The
EPZs have created 3,000 jobs and exports from the zones were valued at $22.3
million in 1994 and $23.4 million in 1995. About 40% of these exports went to the
United States, 21% to Africa, 8% to Europe and 7% to the Middle East.
•
A pre-shipment export financing facility was also introduced in 1992 but abolished
thereafter following massive frauds.
The real exchange rate
The real exchange rate (RER) is one of the most important relative prices in an economy
for export performance. An objective of economic reforms in Kenya has been to reduce
RER misalignment - defined as sustained deviations of the actual real exchange rate from
the "equilibrium" real exchange (Edwards, 1989)4.
RER is formally defined as the price of tradeables in terms of non-tradeables (Pt/Pnt).
6
Since it is difficult to find an exact empirical counterpart to this definition, various proxies
for RER have been estimated in the literature. Usually, RER is approximated by the
product of an index of the nominal exchange rate (NER) and an index of wholesale foreign
prices (WPI) divided by an index of domestic consumer prices (CPI). Figure 1 shows the
evolution of an export-weighted multilateral RER over 1980-1995 that is fairly successful in
reproducing the salient episodes in the macroeconomic history of Kenya.
Between October 1975 and December 1982, the Kenya shilling was pegged to the SDR,
which, calculated from a basket of currencies, was considered to be relatively more stable
than a single currency peg especially following the floating of the U.S. dollar in 1973.
During the SDR peg, the shilling was subjected to a number of discretionary devaluations.
The SDR was abandoned because it was considered inadequate to maintain
competitiveness of the Kenya shilling since the weights used did not reflect Kenya's trade
pattern, which is more diversified. The currencies included in the SDR accounted for only
40% of the country's combined exports and imports.
A crawling peg exchange rate regime was tried in 1983-1991. The exchange rate was
adjusted on a daily basis against a composite basket of currencies of the country's main
trading partners to reflect inflation differentials between Kenya and these countries. In
this period, the RER generally depreciated and was relatively stable.
In 1991, the authorities adopted a more market-based exchange rate regime. It became
government policy to make the shilling convertible by fully liberalizing the current and the
capital accounts, with a stable and "realistic" rate to be maintained through prudent fiscal
and monetary policies. For example on 30 June 1994 the government officially accepted to
abide by obligations of Article VIII of the IMF's Articles of Agreement to promote full
convertibility of the Kenya shilling at least for current account transactions (CBK, 1994).
The introduction of the inter-bank market in August 1992 was accompanied by a
depreciation of the RER in 1993. The RER subsequently appreciated in 1994-1995.
7
In a study of the fundamental determinants of a bilateral RER over 1967-1995, Mwega and
Ndung'u (1996) found that terms of trade, government expenditure and real economic
growth have significant negative impacts (at least at the 10% level). Government
expenditure was mainly spent on non-tradeables while technological progress (proxied by
real economic growth) mainly favoured the tradeables. They also found that the degree of
openness and net capital inflows had insignificant coefficients, reflecting the fact that
Kenya has not undertaken deep reforms. While the RER generally depreciated in the study
period, the trade ratio shows that the Kenya economy became less open over time. The
reduction in openness reflects poor export performance leading to import compression. Net
capital inflows as a proportion of GDP have also substantially declined since the 1980s5.
RER misalignment is formally defined by Edwards (1989) as deviations of the real
exchange rate from its long-run equilibrium level (ERER). Since ERER is not observable,
RERM is proxied in various ways. One method, suggested by Ghura and Grennes (1993), is
to estimate the time path of ERER from a cointegration equation and normalize it so that it
starts from a common base with the actual RER during a period when the economy was to
a large extent in internal and external balance.
Taking 1970 as a year in which Kenya had both internal and external balances (Elbadawi
and Soto, 1995), the results showed that the country registered average misalignment of
6.8% in the 1980s and 8.9% in the first half of the 1990s. The Mwega and Ndung'u (1996)
results support the contention that Kenya has on average maintained a fairly good foreign
exchange rate policy (Takahasi, 1997).
8
Other domestic policies important for export performance
Finance
The ability of exporters to respond to exchange rate and trade liberalization policies will
also depend on availability of finance, which respondents in field surveys often identify as a
most important constraint to exporting. In Kenya's Regional Programme of Enterprise
Development (RPED) survey, for example, a large proportion of firms (80%) mentioned
lack of or cost of financing their operations and expansion as a moderate to major obstacle.
Lack of credit, for example, was ranked ahead of lack of demand, infrastructure and
business support services as major constraints to firm expansion. An analysis of this survey
concludes that collateral borrowing did not work well, so that access to credit is restricted
for nearly all groups of firms, particularly very small ones (Departments of Economics,
1994).
Producing for export requires access to finance for working capital and pre-shipment
activities, as well as to capitalize production to enhance export capabilities. Export credit
insurance is also important since it helps exporters gain confidence in tapping new
markets. Kenya does not provide either export credit or insurance guarantee facility.
Kenya has a fairly well developed financial system6. In the 1960s and 1970s, the
government followed a policy of maintaining low fixed interest rates to promote
investment. In the 1980s this policy was changed and the rates were frequently adjusted
upwards in an effort to keep them positive in real terms. They were fully liberalized in July
1991 to allow them to vary with the demand and availability of loanable funds. A major
concern through the 1990s is the high level of interest rates, which have been pegged on the
treasury bill rate, which has remained high as the authorities have implemented a tight
monetary policy. This also reflects the oligopolistic nature of the banking system, which is
dominated by four banks that control four-fifths of total deposits. These banks focus on
short-term lending to finance commerce, mainly foreign trade. As argued by the 1997-2001
development plan, "the short-term nature of their own corporate interests are (sic) in
conflict with national interests which require longer-term commitments and a better
appreciation of the needs of the Kenya economy. Their policies of concentrating on a small
corporate clientele have implied indifference or even hostility to small savers and
borrowers..." The state has significant interests in two of the major banks.
Besides these institutions, Kenya has five state-owned development finance companies
(DFIs) that provide medium- and long-term finance to industry, commerce and
agriculture7. A major limitation of DFIs is that they lack effective statutory powers to raise
funds independently and have been financially dependent on the state. As the government
budget has become squeezed, financing of DFIs has lost out. They have also mainly
financed parastatals, hence had limited impact on export performance.
9
While Kenya has a well developed money and financial system, its capital market is still in
its infancy, with only 30% of the shares quoted on the Nairobi Stock Exchange. The
market for short-term securities continues to be dominated by government paper. Business
firms in Kenya rarely raise capital through public issues of equity and debt securities. The
main sources of local equity for new investment continue to be retained earnings, savings of
family groups, direct government investment and the development banks. Parastatals and
private firms rely to a large extent for debt finance on direct borrowing, largely through
bank overdrafts.
Price and wage policies
Another set of export incentives relates to (until recently) price controls and the cost of
labour. Price controls started to be extensively applied following the BOP crisis of 1971.
Price decontrols started in 1987 when ten products were removed from the price control
order. In 1988, another 20 products were price-decontrolled and the process continued so
that only 13 commodities were subjected to controls by 1991. These were eventually
abolished in December 1993.
During the existence of controls, affected producers complained about long delays between
application and the grant of a price increase while the cost-plus method applied to
determine prices did not fully incorporate differences and changes in the input structures.
The method also did not encourage firms to reduce their costs of production and to be
efficient, which is necessary if a firm is to venture into foreign markets. It was therefore
argued that price controls impeded entrepreneurship, investment, exports and growth, the
combined effect of which was likely to outweigh the positive impact on price stability.
Since 1973, the government has used wage guidelines and the Industrial Court to regulate
wages. Partly as a consequence of this policy, real wages declined drastically in the 1980s
and 1990s. Private sector real wages declined at an average rate of 1.2% per year in the
1980s and by 4.4% per annum in 1991-1995, perhaps increasing the competitiveness of
domestic producers. Those of the public sector declined by 1.9% per year in the 1980s and
by 7.7% per year in 1991-1995 (Manda, 1997).
Infrastructure
Another constraint to producing for exports is infrastructural inadequacies, including
transportation, water, electric power, waste disposal, security and telephones as well as
secure, reasonably priced storage and warehousing facilities at ports. In the Kenyan RPED
survey, only 31% of the firms felt unaffected by infrastructural problems. In the face of
poor delivery of these services, many firms take recourse to self-provision of some of these
infrastructural services such as electricity, water and security arrangements, thereby
reducing their competitiveness.
The effects of the new WTO discipline on these policies
10
The main objective of the Uruguay Round is to reduce tariff and non-tariff barriers in
order to enhance world trade. Many African countries have undertaken substantial
unilateral trade liberalization in the 1980s and early 1990s reflecting a shift in paradigm
from import-substitution to export-promotion development strategy, the collapse of
communism and the adoption of market-based reforms. Unilateral trade liberalization is
quite consistent with the spirit and philosophy of the Uruguay Round, even though these
reforms, were implemented as part of the IMF/World Bank reform programmes. It is
expected that the liberalized trade regimes under the Uruguay Round will improve Kenya's
export performance by increasing market access particularly into developed countries.
Under the Uruguay Round, all countries are required to tarifficate quantitative
restrictions, to bind their tariffs against further increases and to reduce them over time
(developing countries by 24% over ten years). The agreements also require that all duties
and charges applying to a bound tariff be included in the schedule of commitments with the
bound rate of duty on various products. This is to ensure that a bound tariff concession is
not nullified by the imposition of other duties or charges. Members of the WTO can
challenge the existence of these other duties and charges in a country.
Within agriculture, for example, NTBs must be translated into tariffs and the combined
bound tariffs are subject to an average reduction of 24% (for developing countries) by
2004 or a minimum cut of 10% for each tariff line over a period of ten years. For the least
developed countries (those with per capita income of less than $1,000), these tariff
reductions are not required, although they can bind their tariffs (Donovan and Osei, 1996).
Countries are required to provide information on the products subject to tariffication and
current and minimum access conditions, where minimum access is defined as 3% of
domestic consumption in the base years, this rising to 5% by 2004. When current access is
already above the required minimum level, no further import provision is required.
The new discipline requires a reduction of the total "aggregate measure of support" (AMS)
to producers especially in the agricultural sector. Developing countries must reduce AMS
by 13.3% from the 1986-1988 level, with equal annual steps. Least developed countries are
again exempt. Many forms of assistance that have minimal effects on trade are also exempt
from this commitment including direct payments to producers. In addition, a de minimis
clause allows product support that does not exceed 10% of the value of production of a
basic product or non-product support that is less that 10% of a developing country's value
of agricultural production.
The Uruguay Round agreements have provisions to cope with dumping. They permit
countervailing measures when subsidized imported goods are hurting domestic industries
and include an agreement on safeguards when a surge of imports (even if not dumped or
subsidized) is sufficient to cause or threaten to cause serious injury to domestic industries
that produce similar or competitive products. Two tests must be satisfied before antidumping duties are imposed. First is clear determination of injury or threat of injury to a
11
domestic industry. Second is an investigation to establish that the goods in question are
being imported at a price less than the "normal" price in the country of origin so as to
establish a margin of dumping, which becomes the additional duty imposed on specific
imports expressed as an ad valorem or specific duty. All anti-dumping actions terminate
after five years, unless a full review determines that revoking the action would cause
continued injury.
Prior to the coming into force of WTO, Kenya undertook various policy actions that would
now be suspect. The country applied variable duties on some products that were charged
where the landed cost of a commodity fell below a gazetted domestic reference price.
Starting from Fiscal Year 1995/96, the variable duty was replaced by a combination of
specific and ad valorem rates. The specific rates are compared with the duty chargeable
under advalorem rates, and the higher rate is applied. This has applied to maize, sugar,
rice, milk and milk products, and wheat8. Provisions also exist that permit these duty
surcharges to be increased up to 70% of the legislated rates. It is not clear whether Kenya
fulfilled WTO rules before imposing these anti-dumping duties.
Among the direct export promotion policies, the Uruguay Round agreements prohibit the
use of export subsidies (and subsidies that aim at encouraging use of domestic products
over imports). These must be reduced from the base level in 1986-1990 by 24% in value
(for developing countries) over an eight-year period, during which the subsidies cannot be
increased. Subsidies to reduce costs relating to export marketing and internal
transportation costs are exempt, however. Developing countries and least developed
countries (with per capita income of less than $1,000) are exempt from the export subsidy
reductions, although no new ones may be introduced. These subsidies, however, can be
countervailed by importing countries if they cause serious injury to their domestic
industries, hence the need to maintain trade and exchange rate policies that remove the
need for subsidies.
The WTO rules also prohibit export restrictions except in a few specified situations: (a) to
implement standards and regulations; and (b) to prevent or relieve critical shortages of
foodstuff or other essential products. The rules however permit an export product to be
relieved of indirect taxes in the exporting country, but not direct taxes such as income or
profit taxes on producers. The rules also permit countries to levy duties on exports if these
are necessary to control exports or to achieve some other policy objectives.
Revamping export institutions and regional integration schemes, producing under
manufacturing-under-bond and in EPZ facilities, and liberalizing the trade regime as
Kenya has done in the 1980s and 1990s are consistent with Uruguay Round/WTO
agreements as long as explicit export subsidies are not provided.
3.
Market access under the Uruguay Round and WTO arrangements
The objective of this section is to review and analyse the initial conditions (as of 1995) of
12
market access barriers and special opportunities faced by Kenya's exports in foreign
markets, paying particular attention to tariffs, non-tariff barriers and preferences. The
section also discusses the changes brought about by the Uruguay Round agreements and
their likely effects.
Table 2 shows the destination of some of Kenya's exports. The European Union has
historically been the largest single market, accounting for 32% to 50% of Kenya's exports
in 1980-1996. The EU share increased steadily in the early 1980s, from 35.9% in 1980 to
49.4% in 1988, before declining to 32.7% in 1994. The major importers in this region are
the United Kingdom, Germany, Italy, France and the Netherlands. The United Kingdom is
the leading market for Kenya's exports, followed by Germany.
The next important destination for Kenya's exports is Africa (particularly Uganda and
Tanzania), which is largely included in the "other" category in Table 2. There was a rapid
increase in the share of exports to this region in the 1990s (from 21.9% in 1991 to 51% in
1995, before declining to 48% in 1996), so that exports to Africa for the first time exceeded
those to the traditional European markets. Many of the exports go to the former East
African Community countries. Uganda and Tanzania, for example, accounted for 52.3% of
the total exports to African countries in 1994, while the COMESA region (of which the two
countries are members) took 83.3% of total exports to Africa. Major export to Uganda are
motor spirit, cement, wheat and sugar; those to Tanzania are iron products, beer, sugar,
soaps and medicaments. More than 90% of manufactured exports are sold mostly in Africa
and the Middle East.
The share of exports to Australia and the Far East (mainly Japan, India and China) has
not changed much over time and accounts for about 8% to 14% of total exports. The
United States and Canada absorb less than 10% of total exports. The Middle East and
Eastern Europe have been unimportant destinations of Kenya's exports.
In Section 1, we used the Blackhurst and Lyakurwa (1997) approach to define traditional
exports. Non-traditional (NT) exports then are defined residually as the remaining export
items. Based on this definition, the Kenya annual trade report listed 232 NT exports in
1995.
The following are the 28 leading non-traditional exports (worth at least $10 million each)
in 1995:
•
•
•
•
•
•
•
Fish, fresh ((live or dead), chilled or frozen (SITC 34)
Maize not including sweet (corn) unmilled (SITC 44)
Meals and flours of wheat and flour of meslin (SITC 46)
Vegetables, fresh, chilled or frozen (SITC 54)
Vegetables, roots and tubers (SITC 56)
Fruit and nuts (not oil nuts), fresh or dried (SITC 57)
Fruits (preserved) and fruit preparations (SITC 58)
13
•
•
Fruit juice (including grape must) and vegetable (SITC 59)
Sugar confectionery (SITC 62)
Table 3.1: Destination of Kenya's exports in 1995, %
Germany UK
Coffee, not
roasted
Nether
lands
Italy
Sweden
Finland
USA
Canada Egypt
Stores
0.0
Other
40.4
7.0
5.3
1.8
8.8
4.9
5.6
1.3 0.0
Tea
0.7
31.5
1.3
0.3
0.0
0.0
1.4
0.8
15.8
0.0
48.2
Sisal fibre and
tow
4.1
6.2
1.5
0.9
0.0
0.2
1.1
1.3
5.2
0.0
79.5
Pyrethrum
extract
0.9
9.5
1.4
10.0
0.5
0.3
59.1
1.2
0.5
0.0
16.6
Pyrethrum
flowers
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
Meat and meat
preparations
0.0
0.2
0.5
0.0
0.0
0.0
0.0
0.0
0.0
13.8
85.5
Petroleum
products
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
99.9
Hides, skins and
fur, skins undress
0.0
0.0
0.2
41.5
0.0
0.0
0.0
0.0
0.0
0.0
58.3
Wattle bark
extract
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.7
0.0
94.3
Pineapple, tinned
11.3
20.7
11.0
16.3
2.2
1.1
0.8
0.0
0.0
0.0
36.6
Cement, building
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
Butter and ghee
0.0
3.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2.3
94.8
Sodium carbonate
(soda ash)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
Cotton, raw
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
Beans, peas and
lentils
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
99.9
Wool, raw
0.0
71.9
0.0
19.3
0.0
0.0
0.2
0.0
0.0
0.0
8.5
Oil seeds, nuts
and kernels
0.8
0.0
6.6
0.0
0.0
0.0
35.3
0.0
0.0
0.0
57.2
Maize unmilled
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
All other
commodities
2.3
5.0
6.4
1.3
0.1
0.1
1.5
0.6
0.2
1.6
80.9
Total
7.9
10.4
4.6
1.7
1.5
0.8
2.8
0.7
3.2
0.8
65.6
Source: Kenya, Statistical Abstract, 1996
•
•
Alcoholic beverages (SITC 112)
Tobacco, manufactured (SITC 122)
•
•
Vegetable textile fibres, other than cotton and Jute (SITC 265)
Other crude minerals (SITC 278)
•
•
Fixed vegetable fats, crude, refined or fractionated (SITC 422)
Animal or vegetable fats and oils, processed, waxes (SITC 431)
•
Medicaments including veterinary medicaments (SITC 542)
14
25.0
•
•
Perfumery, cosmetics or toilet preparations (SITC 553)
Soap, cleansing and polishing preparations (SITC 554)
•
•
•
•
•
•
Leather (SITC 611)
Paper and paperboard, cut to size to shape (SITC 642)
Lime, cement, and fabricated construction materials (SITC 661)
Glassware (SITC 665)
Flat-rolled products of iron or non-alloy steel, clad or plated (SITC 674)
Iron and steel bars, rods, angels, shapes and sections (SITC 676)
•
•
•
•
Furniture and parts thereof bedding, mattresses (SITC 821)
Clothing accessories, of textile fabrics (SITC 846)
Footwear (SITC 851)
Articles, n.e.s, of plastics (SITC 893).
According to the UNCTAD TRAINS database, 73.2% of these exports went to the
European Union, hence we focus on this market. Table A1 (in the Appendix) summarises
the market access conditions of these exports to the EU.
In general, Table A1 shows that the incidence of tariff barriers in 1996 was higher for food
and live animals (SITC 0) and alcoholic beverages (SITC 112) than for the other broad
product categories. These products were also subject to stricter non-tariff measures
(NTMs). Crude materials (SITC 2), animal and vegetable oils, fats and wares (SITC 4), and
manufactures (SITC 5-8), on the other hand, had relatively lower tariff charges and less
strict NTMs. The reduction of tariffs and the tariffication of NTMs under the Uruguay
Round is therefore likely to be most beneficial to Kenya's fish industry (SITC 034) and
horticultural products (SITC 054-062), for which Kenya has a clear comparative advantage
and is a major exporter to the EU, although the revealed comparative advantage (RCA)
and the import share vary across (HS 6-digit) products. However, these exports are likely
to be hurt by the erosion of preferences - General System of Preferences (GSP) provided to
the least developed countries (LDCs) and under the Lomé Convention.
4.
Capacity for compliance and defense of rights
As a member of the WTO, Kenya is bound by its rules and obligations and is required to
ensure the conformity of the country's laws, regulations and administrative procedures
with the arrangements in the agreements. In order to translate the provisions of the final
act into domestic policies, it is necessary that human and institutional capacities are
enhanced. The rules of the multilateral trading system are complex, resulting in about 500
pages of legal text embodied in the final act and about 20,000 pages of individual national
concessions. While the results of the Uruguay Round could disadvantage African countries
by diverting trade to non-ACP countries as the Lóme Convention is diluted, opportunities
have been created through reduction of tariffs and quantitative restrictions by developed
countries. The extent to which countries will be able to benefit from these opportunities will
15
depend on their ability to interpret the offers and to perceive the opportunities.
Since the provisions of WTO have to be translated into implementable domestic policies,
this section begins by looking at the policy formulation and implementation process in
Kenya.
Formulation and implementation of economic policies
The responsibility of formulating economic policy rests with two core agencies: the
Ministry of Planning and National Development and the Ministry of Finance, including the
Central Bank of Kenya. Policy planning takes three forms. The first type is the long-term
policy planning that is enunciated in the sessional papers. Sessional papers are more
thematic and usually deal with sectoral development or focused economic issues. The time
frame covered ranges between 5 and 20 years. The sessional paper , "Industrial
transformation to the year 2020", for example, covers the period between 1997 and 2020.
The process of preparing the sessional papers is usually coordinated by the sectoral
ministry concerned and involves all relevant government departments and some private
sector organizations.
The second category of policy planning is the medium-term five-year development plan.
The preparation of these plans is coordinated by the Ministry of Planning and involves all
government ministries and some private sector organizations. The writing of the
development plan begins one year prior to its launching with the formation of a steering
committee and development issues planning group (DIPGs) with focal points located in
sectoral ministries. The groups carry out in-depth analysis of development issues that are
specific to their respective sectors and also assess previous policies to identify successes and
failures. The recommendations of the DIPGs are discussed and analysed further in the light
of broader macroeconomic considerations. The draft consolidated plan is then approved by
the cabinet before being published.
In addition to the two broad plans, various sectoral ministries have come up with actionoriented master plans that contain specific activities and time-tables for implementation.
Since all government ministries are involved in the preparation of the two documents and
in fact provide inputs to the development plans and sessional papers, the policy objectives
of the master plans are usually not at variance with those of the two plans.
The 1997-2001 Development Plan admits that "the monitoring and evaluation of the
implementation of policies have not received sufficient attention". Most policy documents
have not been taken seriously by implementing agencies. This is further confirmed by
policy reversals that have taken place in Kenya in the 1980s and 1990s. There has,
moreover, been no coordination to ensure consistency in policy implementation and
pronouncements. Whereas each ministry is responsible for implementing the policies
specific to it, there are other areas such as trade policies where consultation with other
ministries is necessary to avoid conflicting actions.
16
The introduction of the policy framework papers (PFPs), which are prepared jointly by the
Ministry of Finance and the IMF and the World Bank, was intended to provide a
mechanism by which policy reforms supported by these multilateral institutions can be
continuously monitored. A PFP commits government ministries to implement reforms that
have been agreed upon. The Ministry of Finance is under obligation to report to the IMF
and the World Bank the progress of implementation. The reporting is done in conjunction
with the sectoral ministries. The centrality of the role of the Ministry of Finance in
economic policy commitment has been enhanced by reforms it has been implementing
since the early 1990s, some of which include the privatization of parastatals, financial
sector restructuring, trade and exchange regime liberalization, and civil service reforms.
To reinforce the process of policy implementation, a Presidential Economic Commission
was established in February 1996 to oversee the overall implementation and management
of the economy. The Commission meets infrequently, however, and has no permanent
secretariat to support its activities.
Investor rights
Kenya has adopted a policy of partnership between the government and the private sector
in the process of designing and executing policies at both national and sectoral levels. Apart
from its involvement in the preparation of the short- and long-term plans, the private
sector also participates actively in the national budget preparation process. The budget
contains taxation proposals and outlines the policy priorities for the fiscal year.
Preparation of the annual budget involves a series of working sessions coordinated by the
Budget Steering Committee, which is composed of officials of the Ministry of Planning and
National Development and Ministry of Finance. Other members of the steering committee
include the permanent secretaries, ministries of finance and planning, the Minister of
Finance as Chair, the Central Bank Governor, the Kenya Revenue Authority (KRA)
Commissioner-General and the three KRA commissioners responsible for customs and
excise taxes, VAT, and income tax.
The committee considers papers on economic issues prepared and presented by experts.
Views are invited from private sector firms, economic organizations and private sector
associations such as Institute of Certified Public Accountants of Kenya (ICPAK), Kenya
Institute of Management (KIM), Kenya Association of Manufacturers (KAM), and
National Chamber of Commerce and Industry (NCCI). The Budget Steering Committee is
intended to be a consensus building exercise on economic trends and policies. This process
has ensured that the concerns of the private sector are addressed in policy planning.
Although this process has given some confidence to the private sector, the implementation
of policies and programmes, especially those that confer benefits such as investment and
export incentives, has not proceeded very well. An example is the import duty/VAT scheme,
which exempts exporting firms from paying duties on imported inputs for manufacture of
exports. When an audit has been carried out and it is established that the goods have been
17
exported, a bond executed by the exporter is canceled and the liability to pay duty is
removed. It takes as much as one year to cancel the bonds, however, and during this time
the bond continues to be in force attracting additional premiums. This is largely due to lack
of financial and technical capacity to administer these schemes.
Investors have also often become vulnerable to subsidized and dumped imports, and other
unfair trade practices because the government was unable to implement legislation that
offers them protection (and which is consistent with Uruguay Round agreements). An antidumping legislation contained in the Customs and Excise Act provides for protection of
domestic industry in the event of injury arising from dumped imports. The legislation is
rarely used, despite numerous complaints from investors of subsidized imports especially at
the advent of trade regime liberalization in the 1990s. Occasional suspended and variable
duties have been used to counter "suspected dumping".
Other areas of international trade where investor rights have at times been compromised
are in valuation for customs purposes. Customs valuation process is discussed in greater
detail later, but the use of Brussels Definition of Value (BDV) has often given the Customs
and Excise Department leverage to use arbitrary and sometimes fictitious customs values.
Although such values have been challenged, the Customs Department reserves the right to
make the final decision without the opportunity for appeal by the importer. Enhanced use
of pre-shipment inspection has brought about some fairness and created more room for
disputes resolution.
There is no differential treatment between local and foreign investors. A Foreign
Investment Protection Act (FIPA) enacted in 1965 offers legal guarantees to foreign
investors against compulsory expropriation or acquisition except in accordance with the
provisions of Section 75 of the Constitution of Kenya, which guarantees full and prompt
payment of compensation. The act assures foreign investors that they will have the freedom
to repatriate capital and remit profits although this was at times constrained by balance of
payments problems and foreign exchange controls. FIPA has since undergone several
amendments to bring its provisions in line with reforms in the external trade sector. Kenya
is also a member of the Multilateral Investment Guarantee Agency (MIGA), created by the
World Bank to insure foreign investment in developing countries.
Trade policies formulation and implementation and the need for coordination
The responsibility for formulating and implementing trade policies rests with the Ministry
of Trade (until 1997, the Ministry of Commerce and Industry). Presidential Circular No.
1/98 on the organization of the government outlines the following functions of the Ministry
of Trade: trade and development policy; trade and commerce, including import and export
coordination; export promotion policy; Export Promotion Council; Export Processing
Zone Authority; weights and measures; and the Business Premises Rent Tribunal. These
functions are performed within the overall framework of economic policy formulation and
implementation described above.
18
Before the reforms of the 1990s, the role of the Ministry of Commerce and Industry in
formulating and implementing trade policy was diluted by the largely regulatory
preoccupation of the ministry. The ministry was pervasively involved in administering
import controls including import licensing, export licensing, trade licensing, rent controls,
certificates of origin, and standards of weights and measures. During the same period, a
number of complementary institutions were formed to handle various aspects of trade and
industry. These included the Export Promotion Council (EPC), the Kenya External Trade
Authority (KETA), Export Processing Zone Authority (EPZA) and the Investment
Promotion Centre (IPC). Such diffusion of policy and decision making responsibility led to
inconsistent interpretation of policies, ineffective implementation, and unclear mandate.
There was also the absence of division of labour, which lead to duplication of activities. In
this scenario, it was not possible to know who was responsible for formulating and
implementing trade and investment policies. The ministry's Department of External Trade
was involved in developmental work, however, and had a team of commercial attaches in
various countries to promote markets for Kenyan products, to handle trade inquiries and
to conduct market intelligence. With the abolishing of import, export, price and exchange
controls, as well as trade licensing, many of the regulatory functions of the ministry have
become redundant.
A report prepared for Kenya by the Commonwealth Secretariat (1995) observed that,
although there is a need to refocus the attention of the Ministry of Commerce and Industry
to the management of domestic and international trade, no deliberate action was taken to
enhance its capacity to spearhead the growth of trade, commerce and industrial
development. This weakness is critical with the coming into force of the World Trade
Organization in 1995 and the need for member countries to comply with the provisions of
the Uruguay Round agreements. The ministry's Department of External Trade is charged
with the responsibility of coordinating the implementation of multilateral trade
arrangements including programmes under the WTO and UNCTAD. The demands on this
department will grow in terms of both the volume and the quality of the required analytical
work. The need for capacity building and redeployment of officials within the Ministry of
Trade to enhance efficiency is imperative.
Although the economic reform programme has curtailed the powers of most government
ministries and departments to regulate trade and distribution, there is still a tendency for
government ministries to invoke laws that give them discretion to restrict trade. In April
1995, the Ministry of Agriculture, for example, unilaterally and without the involvement of
other concerned departments, banned the importation of sugar, maize, milk and milk
products to protect domestic producers from competing imports. This was done
notwithstanding Kenya's obligations under WTO to convert all non-tariff measures into
tariff equivalents and binding commitments in market access. This contravened Article 4 of
the Agreement on Agriculture, which stipulates that members shall not maintain, resort to,
or revert to any measures that have been required to be converted into ordinary customs
duties. Most agricultural tariffs had been bound at the rate of 100%, which provides
19
sufficient leeway to protect domestic producers. It was only after trading partners
including the United States and European Union delegations raised questions at the WTO
Committees that the bans were lifted six months later.
Imports have also been restricted in the past on grounds of health risk and low quality
standards without recourse to the mechanisms provided by WTO. In 1996, the Ministry of
Commerce and Industry, for example, closed a supermarket chain in Nairobi for alleged
importation of beef from the UK that was said to contain mad cow disease virus. This
action was taken ostensibly to protect the Kenyan consumer from the risk of disease. The
establishment was not provided with the opportunity to dispute this action. It later turned
out that the consignment was not from the UK and the closure was lifted, but by that time
the meat had gone bad.
This situation calls for a more efficient coordination mechanism between the government
ministries in implementing trade policy. Several agreements cut across many sectors and
implementation require consultations and coordination. The extent to which the Ministry
of Trade can implement the agreements of WTO is limited by the fact that its role has
remained largely advisory. Issues involved in several WTO agreements including customs
valuation, subsidies and countervailing measures, trade related investment measures,
sanitary and phytosanitary regulations, safeguards, government procurement and
financial services are not within the purview of the ministry. All investment schemes,
including tax rebates for international trade, are managed by the Ministry of Finance.
Prior to accession to the WTO, every member country is required to submit a schedule of
commitment containing a list of offers of market access for goods and services. The offers
normally take the form of tariff bindings where a member country undertakes not to
increase its tariffs beyond a certain level. The function of revenue planning and
establishing customs tariffs and domestic taxes rests with the Ministry of Finance.
Regional policy commitments
Kenya's economic cooperation at the regional level revolves around three organizations:
the Common Market for Eastern and Southern Africa (COMESA), the East African
Cooperation (EAC), and the Cross Border Initiative (CBI). Kenya is also a signatory to the
Abuja Treaty, which aims to establish the African Economic Community (AEC)9. Kenya
views these organizations as important vehicles through which the pace of her economic
development can be accelerated.
The aim of COMESA is to create a single subregional market by gradual reduction and
eventual elimination of tariff and non-tariff barriers to trade. The East African
Cooperation seeks to achieve the same objectives but at a faster pace. The EAC is not in
conflict with COMESA since the COMESA treaty allows the formation of smaller
subregional groups as long as they operate on the basis of subsidiarity with COMESA.
COMESA and EAC
20
The highest policymaking organ in COMESA is the Authority, which comprises heads of
state of the 22 member states. COMESA, which has evolved from the Preferential Trade
Area (PTA), was established by the heads of state in 1982. The Council of Ministers, which
is attended by ministers responsible for regional cooperation, is the next highest decision
making organ. The Council is serviced by the Intergovernmental Committee, which is a
Committee of Experts of member countries in all the agreed areas of cooperation. All these
organs meet once a year to consider the progress of implementation of agreed programmes.
Implementation of both COMESA and EAC programmes is done on the basis of
subsidiarity. The secretariat only plays a coordinating role including mobilizing extra
budgetary resources from external donors while the member states implement programmes
agreed upon by the various meetings.
The programmes of COMESA and EAC are normally prepared by the respective
secretariats and are discussed at various levels of policy meetings. The first level is the
sector level committee which comprises experts in the relevant disciplines. When all the
sectoral meetings have taken place, the reports are consolidated into one and presented at a
larger multi-disciplinary committee of experts. In the case of East African Cooperation,
before the decisions are endorsed by ministers, they pass through a coordinating committee
of permanent secretaries. Once the ministers adopt the reports, these decisions become
collectively binding upon member states. At the individual country level, these decisions are
translated into domestic policy, or legislation for those that require the force of law to be
implemented. In Kenya, for instance, the tariffs cannot be reduced in accordance with the
regional reduction programmes unless they are incorporated into the Customs and Excise
Act. This multi-tier process of decision making in the regional organizations is supposed to
ensure that member countries assume ownership of these programmes and that they are
committed to implementation and follow-up.
Experience in Kenya has shown that this commitment is not always forthcoming. Several
programmes of COMESA and EAC have coincided with IMF and World Bank supported
SAPs and their implementation has not entailed any major policy shift. These policies
include the monetary harmonization programme, which entails removing all exchange
controls, adopting positive real interest rates, using market determined exchange rates and
decontrolling all prices in the economy. However, where there have been conflicts between
regional programmes and domestic policy, domestic policy has always taken precedence.
Such was the case when the Central Bank of Kenya unilaterally withdrew from the
COMESA Clearing House in 1993, and suspended the operations of the UAPTA travelers
cheques. This was because exchange controls were liberalized in Kenya before this was
done in several other countries in the region, which led to large inflows of hard currency.
Under the liberalized environment, the Central Bank of Kenya had no legal basis to settle
payments in hard currency on behalf of traders. Also CBK was unwilling to shoulder the
exchange risks of other regional banks given the seventy five day settlement period.
Traders also found it easier and more convenient to settle payments in hard currency
rather than to go through the Clearing House. Several unsuccessful attempts were made by
21
the COMESA Secretariat to convince Kenya to reconsider this position since full utilization
of COMESA-created monetary instruments was a prerequisite to the success of the
monetary harmonization programme. The use of the UAPTA travelers cheques was
discontinued later by COMESA and the Clearing House was transformed to adapt it to the
realities of the liberalized exchange regimes of member states. This cautious approach to
implementing regional programme is not peculiar to Kenya. Indeed, several countries in
the region have reneged on their commitment to the programmes of the regional
organizations where their implementation was leading to revenue loss or increased
competition to domestic industries.
The Cross Border Initiative
Kenya is a member of the CBI, which is jointly supported by the IMF, the World Bank,
African Development Bank and the European Union. The basic objective of the Initiative is
to facilitate cross border trade, payment and investment mechanisms, and integration of
the regional markets. CBI is generally consistent with the IMF and World Bank supported
SAPs, as well as other regional integration schemes of which Kenya is a member. The
objective is to enhance the credibility of these policies, thereby increasing the chance of
their implementation by participating countries. The CBI is also consistent with the
objectives of the WTO. The Initiative focuses on reducing barriers to cross-border flows
among participating countries while at the same time extending the same treatment to third
countries on an MFN basis. The first phase of the CBI came to an end in December 1997,
but a CBI ministerial meeting held in Harare, Zimbabwe, on 17-18 February, 1998
endorsed its continuation to a second phase, during which time it will focus on accelerating
the implementation of the evolving agenda including facilitation of investment. Again, there
is evident need for more seriousness towards the programmes of the CBI. The project
implementation committee (PIC) would need to meet more frequently and to adopt
common approaches to issues on trade, investment and payments10.
Record of compliance with WTO obligations
Overseeing the implementation of WTO obligations is the statutory responsibility of the
Department of External Trade in the Ministry of Trade. The department is currently
divided into four divisions: administration; external trade policy; trade promotion; and
trade fairs and handicrafts. WTO issues are handled by the External Trade Policy
Division, which has the role of participating in bilateral, regional and multilateral trade
negotiations in order to safeguard Kenya's interests in the negotiations.
In 1995, the Ministry of Commerce and Industry set up a permanent inter-ministerial
committee that was given the responsibility of assisting the government to adapt its
economic and trade policies to the requirements of all the agreements administered by the
WTO as well as to assist the country to take maximum advantage of the trading
opportunities created by the Uruguay Round. The initial tasks of the committee were:
22
•
To analyse the new market access conditions and to identify immediate and
potential trading opportunities created by the Uruguay Round.
•
To analyse the sectoral impact of the various agreements and to examine how best
the country could adopt to the new trading environment.
•
To assist the government in identifying the obligations that require new legislation
or changes in existing legislation or administrative practices for implementing the
Uruguay Round agreements.
•
Too increase the awareness of the government of institutional and legislative means
by which it could safeguard its rights and obligations while at the same time
maintaining fair trade practices.
To enable the inter-ministerial committee to perform its functions, various subcommittees
were constituted, representing broad classifications of the WTO agreements. The
subcommittees were chaired by representatives of various sectoral ministries. Subcommittees were created for: agriculture; anti-dumping and customs valuation; import
licensing and pre-shipment inspection; safeguards, subsidies, countervailing measures and
technical barriers to trade; and other areas including intellectual property and investment
measures.
Members of the inter-ministerial committee are drawn from virtually all the relevant
government ministries and parastatals, as well as private sector organizations including the
manufacturers association, chamber of commerce and industries, bankers association,
universities, and association of insurers. This committee has since been renamed National
Committee on WTO to reflect the presence of the private sector in its membership.
Notifications
The inter-ministerial committee's first assignment was to undertake notifications. This was
considered a priority exercise since several notifiable measures had set deadlines. The
exercise involves notifying the WTO Secretariat to the maximum extent possible a
member's adoption of trade measures affecting the operation of GATT (1994). There are
some 200 notifications requirements under WTO multilateral trade arrangements.
Member states that wish to delay the application of certain agreements are under
obligation to submit notifications. There are essentially two broad categories of
notifications: the standard notification, which includes the notification of laws, regulations,
administrative procedures and existing restrictions; and those that consist of specific
notifications such as a member wishing to reserve rights or to use provisions that allow for
time limited exceptions and transitional periods. An indicative list of notifiable measures
was provided by WTO but those that are relevant to Kenya relate to the notifications of
national laws and regulations at the time of entry into force of the WTO and on an ad hoc
23
basis whenever there are changes in the laws or the regulations. Other notification are
those on safeguard measures, export restrictions, net food importation and food aid,
aggregate measures of support, export subsidies, domestic support measures, market
access, and sanitary and phytosanitary measures.
The Department of External Trade, working in conjunction with the permanent interministerial committee had submitted 22 notifications to the WTO Secretariat by 1997 on
the areas outlined above.
The exercise of notifications has not been a smooth one. Only a few of the 22 notifications
Kenya has submitted have actually been documented as complete notifications. The WTO
Secretariat often communicated back to indicate that the notifications submitted did not
completely fulfil or comply with the requirements. This is basically because the reporting
authorities lack the technical and institutional capacity to handle the stringent notification
procedures, some of which include providing justification, making reference to the relevant
articles, outlining transitional preparations to ensure compliance with various agreements,
etc. Consequently, the permanent inter-ministerial committee has been preoccupied with
submitting and resubmitting notifications. There are instances when notifications that had
no bearing on Kenya's trading environment were submitted because the committee was
unaware that not all measures were notifiable. There still remains plenty of scope for
improving compliance with notification requirements. This is an area where the WTO
Secretariat has expressed willingness to provide technical assistance and the Department of
External Trade may consider requesting this assistance for capacity building.
Response to questions by delegations
The Department of External Trade in conjunction with relevant government ministries has
responded on a regular basis to questions and issues raised by various country delegations
in Geneva. Some of these questions relate to laws and administrative arrangements that
are inconsistent with the requirements of WTO. The Kenya Permanent Mission to the
United Nations in Geneva has acted as the link between the WTO Secretariat and the
concerned government departments. A commercial attaché posted to Geneva by the
Ministry of Trade provides the backstopping functions and also attends meetings that are
of importance to Kenya.
Adapting legislation and administrative arrangements
In order to benefit from the provisions of several WTO agreements, it is necessary to
ensure that the right institutional mechanism is established. This includes adopting
domestic legislation, rules and procedures for implementing the agreements. Kenya has
made some progress in this direction.
Anti-dumping and countervailing duties and justification
24
The WTO agreement on anti-dumping and countervailing duties (ADCD) allows member
governments to impose measures in the form of quotas or tariffs to deal with serious injury
to a domestic industry caused by underpriced or subsidized imports. Kenya's antidumping law, which is contained in the sections 125 and 126 of the Customs and Excise
Act, was enacted in 1984, long before the WTO agreement came into force. It was
therefore not possible for Kenya to continue using this legislation in its existing form since
some of its provisions did not conform to the requirements of the WTO agreement. The
act, for instance, made no mention whatsoever of the procedures to be followed in
determining the presence of dumping or subsidies and the calculation of the duties to be
imposed.
The government with the assistance of a legal expert from WTO embarked on an exercise
to overhaul the existing legislation and make it compatible with the WTO requirements.
The draft legislation, which was completed during the 1996/97 financial year, basically
replaced the two sections (125 and 126). The aim of the legislation was to ensure that any
action taken by Kenya to counter the effects of dumped or subsidized imports was done in
conformity with the WTO agreement and ensured transparency and legal certainty for
trading partners. The law also clearly defined anti-dumping and the circumstances under
which the government could take decisive action.
The anti-dumping section of the legislation initially failed to go through parliament due to
minor issues. The legislators felt that the amendments did not confer on the minister
sufficient powers to deal with dumping and subsidization. The concern of parliament did
not greatly compromise the need to bring the law into conformity with the requirements of
WTO. The contention was simply whether the legislation should give the minister freedom
to decide to initiate investigation upon receiving a complaint, or require that investigations
be commenced immediately. Since this did not constitute a serious departure from the
requirements of the WTO, the amendments were effected and the legislation was passed in
the 1998/99 budget.
In the course of preparing the anti-dumping legislation, it also transpired that there are
many forms of unfair trading practices that cannot be addressed through the anti-dumping
or countervailing duty instrument, and that in any event the agreement could only apply to
imports that had occurred after the initiation of an investigation. This meant the
legislation could not be applied retroactively. The need has therefore been felt to prepare
legislation on safeguards agreement that will address other circumstances not covered by
the anti-dumping agreement. The safeguards agreement will complement the antidumping and countervailing duty instrument. Its advantage is that it does not require the
identification of unfair trading practices and it does not contain as detailed procedural
requirements. It is therefore intended that after the necessary ministerial regulations have
been gazetted, work will begin on the preparation of an agreement on safeguards.
When Kenya embarked on its economic liberalization programme in 1993, no transition
period was given to the industrial sector to allow it to adjust to a highly competitive
25
environment. Import controls were liberalized at the same time as exchange controls,
while tariffs were substantially adjusted downwards. This was against a background of
high tariff protection and quantitative restrictions that had made industry uncompetitive,
producing at high cost. There was subsequently rapid and substantial increases of imports
at lower prices, which led manufacturers to press for protection. The need to have an antidumping and countervailing duties legislation that could be used without contravening the
requirements of WTO was subsequently borne out of this development.
Discussions held with key government ministries, organizations and representatives of
private sector organizations such as Kenya Association of Manufacturers reveals that the
concept of dumping as defined in the WTO legal text is not fully appreciated. Lower
market prices and increased imports seem to have been equated with unfair trade practices
that result from injurious dumping or subsidization. In fact, evidence suggests that
situations cited as dumping have simply resulted from the reduction of customs duties and
the deregulation process which made imported products more available and affordable and
exacerbated competition on the domestic market.
If this observation is true, then there are serious doubts as to the extent which antidumping and countervailing duties legislation will be useful or even implemented to the
letter and spirit of the agreement.
We have examined the extent to which the 1984 Act was used to combat dumping activities,
and our findings are that such actions have been erratic and not determined scientifically.
The seventh schedule of the Customs and Excise Act, which contains a list of items subject
to dumping and the dumping duty rates, so far has only used motor vehicles, which are
subjected to a dumping duty of 20% or KSh30,000 for vehicles more than five years old
and KSh60,000 for vehicles older than eight years.
The complexities of the anti-dumping agreement create doubts as to the capacity of Kenya
to utilize its dumping law effectively. Among the detailed procedures of the agreement are
determination of injurious dumping, causal link between injury and dumped imports,
determination of existence and amount of subsidies, the conduct of investigation,
imposition and collection of duties, and administrative and judicial review.
The current legislation that has been passed in parliament is only a bare bones law that will
be complemented by ministerial regulations. The regulations have already been drafted
with the assistance of the World Trade Organization but have yet to be finalized. During
discussions with the WTO legal experts assisting the drafting team, the view was expressed
that any attempt to shorten the broad law and the 52-page regulations may raise suspicion
among the other WTO members who will scrutinize the Kenyan legislation within the
framework of the WTO anti-dumping and countervailing measures committee once the
legislation is notified.
The issue of the advisory committee to be set up by the minister to investigate dumping was
26
also raised on several occasions. The main question was finding the appropriate institution
to house the committee. The closest institution is the Prices and Monopolies Commission,
which is responsible for investigating restrictive trade practices and unfair market prices.
This commission only deals with matters affecting trade, production and prices among
locally incorporated companies and enterprises. It therefore may not have the capacity and
experience to conduct the detailed investigations required by the WTO agreements. Some
of its functions have also become redundant, since it was created during the price control
days.
Other instruments that could be used to address the problems faced by industry
Since the workability of the anti-dumping and anti-subsidy legislation appears to be in
question, it may be important for the authorities to exploit fully other instruments that can
be used more easily. The government can primarily have recourse to the following
unilateral tools.
•
Increase tariffs: Customs duties can be freely increased as long as the increase does
not exceed the rate bound in Kenya's GATT schedule of commitment. The only
disadvantage is that tariff increases can only apply on a most favoured nation basis
and cannot target one or few countries.
•
Use of suspended duties: Currently Kenya has a suspended duty structure that
allows the minister to raise duties on certain items without going back to parliament
to seek approval. This duty is only provided for in law and is not applied until the
situation warrants. Kenya could identify products suspected to be dumped and
provide for suspended duty, which can be applied without undertaking detailed and
lengthy investigations. (A major concern raised by Kenyan authorities during
drafting was that the WTO procedures required that provisional anti-dumping
duties be applied only after 60 days, and that this must also be subject to
preliminary investigations. The concern is that if an industry is in serious problems
as a result of unfairly priced imports, 60 days would be too long, and an industry
may have collapsed by the time anti-dumping measures are implemented.)
•
Seek recourse to safeguard measures: The administrative procedures required
under the safeguard agreement are not as complex as those required by the antidumping law. In fact, it appears that this would have been a more relevant law
given the problems faced by the Kenyan industries. Safeguard measures do not
require the existence of unfairness in international trade practice, which would be
difficult to determine. There is currently no law on safeguard measures and the
government is considering enacting one.
•
Levy excise duties: Kenya could also increase the use of excise duty as a means of
protecting domestic industry. The WTO act appears to be passive on other charges
whose effects are equivalent to customs duty, such as excise duty and VAT on
27
imports.
Our conclusion is that although there appear to be daunting difficulties in using the
provisions of the anti-dumping law, there may be advantages in having it in place. First, it
acts as a deterrent measure to exporters who would consider sales to Kenya or subsidizing
exports to Kenya. Second, in the event that it became necessary to use it in the future, it
would provide an opportunity to build capacity in this area. The World Trade
Organization has offered to work with Kenyan investigators as part of technical assistance
on the first few cases of dumping or subsidization. There is, for instance, a strong feeling in
manufacturing circles that several products from South Africa are subsidized. Third, it
creates an environment of confidence among local businesses and prospective investors.
Customs valuation
Prior to the coming into force of the World Trade Organization, the Excise and Customs
Department applied the Brussels definition of value, which is the price the good would
fetch if sold in an open market. The WTO system of customs valuation provides for the use
of new valuation procedures, the main standard being the transaction value. The
transaction value is based on the price actually paid or payable when sold for export to the
country of exportation. The valuation system limits the discretion available to customs to
five other standards in the event that the transaction value declared by the importer is
disputed. These are the transaction value of identical goods, the transaction value of similar
goods, deductive value, computed value, and fallback method. The notification submitted
basically invokes delayed application of the provisions of Article 20.1 and informs the
Secretariat that Kenyan customs will continue applying the Brussels Definition of Value
due to revenue consideration for the next five years. WTO provides for a grace period of
delayed implementation of the valuation code for five years starting from 1 January, 1995
when the WTO came into force. This is not supposed to be a period of inactivity, however.
The reason for the grace period is to allow time to make the necessary administrative and
legal changes that enable a country to comply with this requirement. Kenya has sought and
received assistance from the World Customs Organization to assess the current capacity of
the Customs and Excise Department to comply with the new valuation procedure.
Necessary changes will include amending the relevant section of the Customs and Excise
Act to provide for consistency with WTO valuation standards. The amendments will
include declaration and clearance procedures, importers' responsibilities in making
declarations, penalty provisions, and the right of the importer to appeal to judicial
authorities.
Financial services negotiations
Negotiations on financial services came to a successful conclusion in December 1997.
Kenya's participation in these negotiations involved reviewing the offers made in the 1995
schedule of commitments, and bringing more areas into the schedule. In 1995, services such
as supply of maritime air and transport insurance and reinsurance remained unbound,
28
implying that Kenya could introduce restrictions in those areas if circumstances demanded.
In the schedule of commitments submitted to the Secretariat, some of the market access
commitments were improved and bound, permitting supply on a non-discriminatory basis.
Seminars and workshops
Various seminars and workshops have been organized by the Department of External
Trade with assistance from the WTO Secretariat. These workshops have familiarized both
government officials and private sector players with the concepts and agreements of the
WTO. Four seminars were held in 1995-1997: The outcome of the Uruguay Round and its
benefits to Kenya; WTO and the Uruguay Round; Guide to Uruguay Round; and Preshipment inspection, textiles and clothing and customs valuation.
Capacity constraints and capacity building needs: the public sector
Limitations of the permanent inter-ministerial committee and capacity building needs
The terms of reference provided for the PIMC at its launching took into account the need
to effectively translate and implement the provisions of the WTO. The five sub-committees
established were to assist the committee to analyse new market access conditions and
identify immediate and potential trading opportunities, as well as to assist in identifying the
obligations that require changes in legislation or administrative practices to enable the
country to implement the Uruguay Round agreements.
Since the PIMC was launched in 1995, its main preoccupation has been with fulfillment of
notification obligations. The committee has not achieved much in terms of analytical work.
Part of the reason for this is the way the committee is constituted. The committee has about
26 members drawn from government ministries and departments as well private sector
organizations and associations. This makes the committee too large, and so it can only
address issues of a more general nature. The subcommittees, which should have been more
analytical in their work, have concentrated more on notification requirements. In addition,
members of these subcommittees were engaged elsewhere in their respective institutions
and can only spend a limited amount of time to attend to WTO matters. Several meetings
of the subcommittees have suffered from lack of a quorum.
The External Trade Department of the Ministry of Trade acts as the secretariat to both the
committee as well as the subcommittees. The Commonwealth (1995) study observed that
this department "does not possess adequate capacity to advise the government on complex
issues such as the effects of the phasing out of MFA on Kenya's textiles exports over a
period of 10 years, the erosion of preferences under the EU/ACP arrangements with the
reduction of tariffs consequent to the implementation of the Uruguay Round", and
concluded that "a greater capacity needs to be built up in the division to handle trade
policy issues". The recent change in name from the Permanent Inter-ministerial Committee
to National Committee on WTO, which was partly intended to enhance the status of the
29
committee, is not likely to achieve much unless the committee is entrusted with a clearer
mandate. The PIMC was to be an authoritative committee to be taken seriously by
policymakers. This has not happened and there are instances of policy pronouncements
that go against GATT rules, such as import bans and other quantitative restrictions which
the committee has advised against.
The WTO is set to become a very pervasive organization in the international trading
environment. Its rules and requirements will affect every facet of the economies of its
member states. There is definitely need to strengthen Kenya's capacity to participate
actively in the remaining areas of negotiations, which include trade and labour standards,
trade and investment relations, and foreign direct investment and competition. In addition,
new problems and issues will emerge in trade relations among countries that will have to be
discussed on a continuous basis. Building this capacity is critical if Kenya is to protect her
trading rights and maximize trading opportunities created by the Uruguay Round.
Kenya's participation in the Uruguay Round reflected a lack of commitment and an
apathetic attitude towards the negotiations. First, adequate preparations were lacking and
representation at the discussions were at the embassy level. Since the negotiations basically
involved the exchange of tariff concessions by member countries, it was necessary at the
outset that countries identify their interests in terms of competitive advantage that they
possessed and negotiate with their trading partners the levels of concessions that would be
accorded. Also, given that most agreements were specialized, it was not possible for the
embassy staff to contribute in a meaningful way towards the country's interests. Kenya's
passive participation may have therefore resulted from a lack of negotiating agenda.
Second, there was no effective backup from home. The staff at the Kenyan embassy in
Geneva were not experts and they had to rely occasionally on feedback from home to
express Kenya's position on various issues. When the information was not forthcoming, no
responses were provided. Things do appear to have changed since the coming into force of
the World Trade Organization in 1995. It became apparent that the negotiations will affect
the way the country conducts international trade, and the need has increasingly been felt to
enhance Kenya's capacity to understand the agreements and to prepare for more effective
participation in the future agenda of the World Trade Organization.
Capacity to conduct anti-dumping legislation
Once the anti-dumping and countervailing duty legislation went through, a competent
authority was designated by the government to handle complaints of dumping. Given the
complex procedures to be observed, initial cases were likely to be difficult. With trade
liberalization , complaints of dumping and subsidization have increased. The rules division
of the WTO has offered to work with the investigating authority on the first few cases to
help build capacity. The Prices and Monopolies Commission is likely to play a key role in
this area and its human and institutional capacity should be identified and revamped.
30
Capacity for customs valuation
After the expiry of the five-year grace period for the use of Brussels Definition of Value,
Customs and Excise Department must begin applying the GATT valuation code. Although
some assistance has been received on identifying capacity needs, no action seems to have
been taken to prepare for the application of the new system except for computerization
and tighter control procedures to reduce fraud.
Capacity for asserting and defending rights
•
Scheduling of commitments
The outcomes of previous negotiations concluded between the Government of Kenya and
other trading partners raise questions on the capacity of Kenya to effectively
negotiate and defend country rights enshrined in the WTO and other agreements. When
Kenya, for example, submitted to the GATT Secretariat schedules of commitments in
services, no exemption was sought to the GATS annex on computer reservations system
(CRS). The consequence was that Kenya would grant unrestricted market access to
foreign computer reservation systems. CRS basically enhances the distribution networks
of airlines and interconnects airlines to local travel agents. It was only later that the Kenya
national carrier, Kenya Airways, which was a member of the Gabriel Extended Travel
System(GETS), realized that allowing access to other CRS would seriously undermine the
carrier's market share at home at a time when it was contemplating privatization. The
Ministry of Commerce and Industry initiated the process of filing an exemption to the
MFN treatment for a grace period of five years. At this time, it was decided that Kenya's
offers should be revisited with a view to filing more exemptions if found necessary.
•
Kenya-U.S. Textile agreement
This agreement provides an important insight into Kenya's capacity both to comply with
the provisions of agreements it negotiates with trading partners and to negotiate and
defend her rights.
Under the current GATT rules, quotas would be prohibited, but under the Multi-Fibre
Agreement, several industrial countries including the United States have restricted imports
though bilateral quotas in addition to maintaining high tariffs in this sector. It is widely
believed that the imposing of export quotas in the United States for certain categories of
textile products from Kenya has adversely affected the textile industry in general and led to
closures of a large number of firms engaged in exports of textile products. In 1995, more
than 12 textile based manufacturing under bond (MUB) firms collapsed, an event which
was largely attributed to the limitations in the quota agreement. This section of the study
looks at the available evidence and attempts to establish possible linkages between the
Kenya-U.S. textile agreement and the collapse of several of these exporting firms. Also
considered is the justification for the imposition of the quota as well as Kenya's
31
preparedness to negotiate. The conclusions are arrived at, first, by looking at the quota
levels, product coverage and production capacity of the firms that were involved in exports
of garments to the U.S. and other distant markets. We have also held interviews with
personalities who were involved in the negotiation process, and some key officials of the
Ministry of Trade, Export Processing Zones Authority, Investment Promotion Centre and
the Export Promotion Council.
The Kenya/U.S. Textile Agreement was signed in July 1994. Even though the agreement
originally covered only two years, it was mutually agreed that the provisions would remain
after the Uruguay Round came into force. The negotiated agreement sets limits to annual
exports of two categories of textile products; boys' and men's T-shirts made of cotton and
man-made fibres are limited to 384,600 dozens and pillow cases made of cotton and manmade fibres to 2,600,000. The Ministry of Commerce (at the time, the Ministry of Trade)
indicated that the agreement was negotiated when the U.S. Customs administration became
concerned with the rapid increase of the exports of shirts and pillow cases from Kenya.
Within a space of one year, the exports of these products had risen seven times, exceeding
the 1% level of the domestic U.S. market requirement. This position has actually been
contradicted by a fact finding mission by the U.S. State Department which observed that in
1996, the entire sub-Saharan Africa exports of textiles to the U.S. were less than 1%. This,
by implication, means that the negotiation of this agreement could not have been optimal.
It is not clear whether Kenya was forced into negotiating the quotas and whether there
could have been recourse to the dispute settlement mechanism of the WTO, but the fact
that quotas were imposed on several other large textile exporting countries including
Mauritius (the only other country in Africa) suggests that Kenya could not have gone away
with unfettered exports of these products to the United States. The WTO has nevertheless
indicated that, if Kenyan authorities had sought assistance from WTO in preparing for the
negotiations, that assistance would have been availed. The negotiating team did not benefit
from this assistance. Representatives of textile firms believe that Kenyan negotiators
lacked experience, technical expertise and the right preparation for the negotiations. No
representative of the textile industry was involved in the negotiating process.
We also found that even if the quota allocation system was functioning, it would still be
possible for Kenya to take advantage of the flexibilities in the agreement, which include
using "swing numbers" that increase the base rate of the quotas by an additional 10%.
The quota agreement also provided for an automatic 16% increase in exports for the first
four years, 26% for the next two years and 27% for the last four years.
The insistence of the Kenyan authorities that the quotas must be lifted against all the odds
may be an indication of the inability of authorities to perceive the benefits the WTO may
bring. Efforts to renegotiate the quotas have also revealed that Kenya could take
advantage of the changes made in the U.S. rules of origin on textile/garment trade, which
alter the qualifying criteria from where the fabric is cut to where the fabric is assembled.
As for the phenomenal increase in the exports of these items, no explanation was secured
32
from the textile firms or from government officials, but there have been several occasions
when the U.S. government accused Kenyan firms of simply being used as transhipment
points for products originating from countries that had already exhausted their quotas.
Previous discussions with US officials confirm this. We found that this issue has been
discussed by the U.S. and Kenyan governments and a text agreement on anticircumvention has been prepared.
There has been unwillingness on the part of the Kenya government to sign the agreement,
however, because of unhappiness with the reluctance of the United States to review the
quota agreement. Discussions with Export Processing Zones Authority(EPZA) revealed
that there was a time when a few firms within the zones were involved in transhipment, but
this had since been addressed by the Authority. Visits by officials of the government to
some MUB firms had also revealed that in a few cases there was little evidence of those
firms having exported the volumes adduced to them, considering the size and technology of
the plant.
In our discussions with officials of the commerce department in the U.S. Embassy, it
became apparent that renegotiation or even lifting of the quotas is no longer viable. When
the agreement was signed and effected in 1994, the U.S. government notified the WTO as
required. It was agreed that the agreement would become part of the WTO Agreement on
Textiles and Clothing (ATC) upon entry into force of WTO. After 1995, therefore, the
agreement ceased to become bilateral and was now covered in the terms of ATC which
Kenya also belongs. There is therefore no basis for bilateral negotiations between Kenya
and United States as far as the United States is concerned.
The US Growth and Opportunity Act
The quota agreement between Kenya and the United States was done before the Africa
Growth and Opportunity Act was drafted. The act, which seeks among other things to
eliminate trade barriers and encourage exports from sub-Saharan Africa to the United
States creates provisions for the elimination of quotas from Kenya and Mauritius. Section
i(c) of the act says that "Pursuant to the Agreement on Textiles and Clothing, the United
States shall eliminate the existing quotas on textile and apparel exports to the United States
from Kenya within 30 days after that country adopts an efficient visa system to guard
against unlawful transhipment of textile and apparel goods and the use of counterfeit
documents".
It is clear that the passing of this act through the senate will not happen soon. In fact, there
are doubts if the act will actually survive at all, given the strong lobby against it in the
Senate. Discussions with U.S. officials reveals that even if it were to go through, the textile
provisions may not be passed.
Linking the quota agreement to the demise of the textile industry
In our discussion, it would appear that there is no direct linkage between the collapsed
33
textile exporting firms and the conclusion of the quota agreement. When the agreement
came into effect in early 1995, the association of Manufacturers Under Bond (MUBs)
claimed that local capacity to produce and export exceeded 2.8 million dozens compared
with the 360,000 negotiated. When the factories were allocated specific export quotas, they
claimed that the allocations would keep them going for only three months and requested
the government to renegotiate the quotas on improved terms. When the quotas were
negotiated, it became apparent that for the orderly functioning of the textile export
industry, there was need to have in place an administrative system that would allocate
quotas among exporting firms. The system would address concerns such as which firms
gets the allocation, which categories of existing exporter and new entrants get allocations,
modalities for allocation, percentages to each allottee, etc.
It is evident that after the quotas were allocated, there was no mechanism for establishing
the performance of firms and the quota allocation and administration system fell away
under the weight of its own bureaucracy. Eventually no firm was actually restricted in
terms of export volumes to the U.S. market.
However, there appears to be unanimity in adducing some "psychological" impact, which
had an effect on both the suppliers and the buyers. This was confirmed by exporting firms
and officials of the Ministry of Trade and of the Export Processing Zones Authority.
Immediately after the announcing of quotas, American buyers became apprehensive about
the ability of Kenyan producers to sustain their demand and began looking to other
sources for supply. This led to reduced demand and some firms that had secured longterm orders had the orders cancelled.
Also, discussions with the textile industry revealed the existence of a host of other factors
that contributed to the collapse of the MUB firms and problems in the textile industry in
general including old technology, liberalization and competition from second-hand clothes
As to whether or not the lifting of the quotas would improve the export performance of
textile firms, several people believe that this may actually be counterproductive. The view
has been expressed that the general lifting of quotas may actually have negative
implications for export business as a result of stiff competition from more efficient, lower
cost producers.
The study of the Kenya/U.S. textile agreement reveals the following:
•
We did not find sufficient justification for the United States to demand the
imposition of quotas. Although circumvention has featured in bilateral discussions,
it was not cited as a major problem. A visit by the U.S. State Department to Kenya
and other African countries confirmed that the manufacturing sector in subSaharan Africa poses an insignificant threat to market disruptions and jobs in the
United States. Congress reported in the African Growth and Opportunity Act that
annual textile and apparel exports to the United States from sub-Saharan Africa
represent less that 1% of all textile and apparel exports to the United States in 1996.
34
The report also indicated that in the next ten years, it is not likely that total subSaharan exports of textiles will exceed 3% annually, which represents no threat to
U.S. workers, consumers and manufacturers.
•
There is need for Kenya to address herself to enhancement of capacity to negotiate
and defend her rights effectively. There are questions that should have been raised
before acceding to the request for negotiating quotas. It appears that the U.S.
decision to impose quotas was speculative as there was no real threat of Kenyan
exports of textiles to the U.S. market. There should also have been more thorough
preparation on the part of the negotiating team.
Capacity constraints and capacity building needs: the private sector
Capacity constraints are not limited to the public sector. The private sector in Kenya has
not demonstrated enthusiasm for the WTO. This is seen in the apathetic attitude towards
meetings of the WTO National Committee, of which both the Kenya Association of
Manufacturers and the National Chamber of Commerce and Industry are members.
Attendance at WTO seminars by the private sector has not been very encouraging. This
may be an indication that the private sector is yet to be convinced of the benefits to be
gained from the strengthened multilateral rules and the liberalization of trade. This apathy
is also attributed to the fact that they have not been adequately represented or included in
past negotiations. The business community has consequently remained largely ignorant of
the WTO agreements, even those that relate to the respective sectors. A complementary
role has to emerge between the public sector and the private sector. Whereas it is
governments that participate in negotiations, it is the private sector that is affected by the
outcomes of the negotiations. In most of the agreements which confer rights and benefits
such as the anti-dumping and anti-subsidies agreements, it is the private sector that must
initiate action on the basis of which the government will commence investigations.
Strengthening Kenya's WTO office in Geneva
A case has often been made for strengthening Kenya's WTO office in Geneva. Currently,
two officials sitting in Kenya's Permanent Mission to the United Nations are attending to
WTO matters. It has been felt that there is need to increase the number to at least five to
ensure that Kenya is represented in all relevant meetings of WTO committees and working
parties set up from time to time. While there may be merit in increasing the staff, without
the corresponding enhancement of capacity at home to understand the instruments the
government negotiated under the Uruguay Round, and to translate them into domestic
policies, this action will only increase the financing burden of the government of supporting
additional staff who will not be fully used. Moreover, if the Geneva office is to be
strengthened, then a more effective process must be applied in the selection of the relevant
staff. The staff at the Geneva Office are commercial attaches posted by the Ministry of
Commerce and Industry and it is important to reinforce the office with a lawyer to help
interpret the legal issues. The process of identifying the experts must therefore be clearly
35
determined.
Strengthening of local backup and consultation capacity on WTO issues
Although the National Committee on WTO has done some basic work in submitting
notifications, there is need for it to be revitalized so that it can live up to its mandate. This
committee is also too large, having in its membership more than 20 people representing
different ministries and organizations. It would be better if the committee is trimmed so
that it becomes more functional. The committee could then draw upon the expertise of
various ministries and organizations as may be required from time to time.
Another problem that has often been cited by the committee is lack of sufficient funds to
discharge its responsibilities. The committee's work programme involves mounting
seminars to create awareness among the business community and other members of the
public on the rights and obligations of member states. Members of this committee also need
to attend meetings in Geneva to familiarize themselves with issues and the negotiation
process. Every year a calendar of committee meetings is released by the WTO Secretariat
and circulated to member countries. Not all the meetings are relevant to the National
Committee but it in necessary that those that are of interest be identified and attended.
The negotiating process takes place in Geneva, in the committee meetings and in the
working groups set up by the General Council and the Ministerial Councils.
A recapitulation
Our analysis of the capacity for compliance and the capacity to defend Kenya's rights in
the new global trading environment indicates that the domestic policy environment is about
right and the general domestic policy thrusts support the objectives of the world trading
system. The reality on the ground, however, reveals some degree of variance between stated
policy and implementation. National concerns still override commitments to the
programmes of all the regional and international organizations that Kenya belong to.
There seems to be two reasons for this divergence. First is the lack of institutional and
technical capacity for implementation. Second is the hesitation to absorb the cost of
adjusting to the programmes and rules of the multilateral trading system. The
interventions of the IMF and the World Bank have obviously given credence to the new
world trading system and increased the degree of compliance. As stated by Nur Calika and
Uwe Corsepius (1994):
When trade reform is undertaken in the context of a Fund-supported programme, it
becomes an element of a comprehensive, integrated policy package aimed at
achieving non-inflationary growth and a viable external position. Such an
integrated approach implies that the trade reform is likely to have a greater chance
of success, as it is likely to be accompanied by complimentary macroeconomic and
structural measures.
36
5.
Kenya's priorities for future trade negotiations
The Uruguay Round of multilateral trade left unresolved a number of outstanding issues
in areas like trade in telecommunications and services. In addition to this unfinished
business, there are also intentions to launch new negotiations involving new issues as part
of a future WTO work programme. At the first WTO biennial ministerial meeting in
Singapore, an impasse emerged that split delegations into two protagonists: those who
wished to see some exploratory work begin in these new issues and those who felt that
WTO was still grappling with basic issues of credibility and therefore the focus should be
concentrated on implementing what had already been agreed on. A compromise was
arrived at and a working party set up to examine the relationship between trade and
investment and trade and competition in order to identify areas that may merit further
consideration in the WTO framework.
Kenya was invited to provide inputs to the work of various working parties, but showed a
lack of enthusiasm for participating. This is an area that will certainly be of interest to
Kenya. The National Committee on WTO should begin to study these proposals
analytically to determine how they are likely to affect Kenya's trade and investment
environment. The issues that may be considered for future negotiations include the
following:
•
•
•
•
•
•
•
Core labour standards
Textiles and clothing
Trade and environment
Information technology and pharmaceuticals
Trade and investment
Investment and competition policy
Government and procurement
Some consensus has emerged on these new issues. At the Singapore Ministerial Conference,
Kenya's position was in harmony with those of other developing countries, basically that
other UN systems are more competent to handle most of these issues. For investment and
competition policy specifically, Kenya seems not to have serious objections to introducing
an agreement that governs the behaviour of producers in the market structure. Kenya
already has a legal and administrative framework for competition policy that seeks to
check producer behaviour in such areas as pricing, horizontal and vertical arrangements
like cartelization, and output restrictions. The Monopolies and Prices Commission is
responsible for implementing the law. The envisaged agreement will simply reinforce what
already exists.
There are other operational agreements whose implementation should be closely observed,
given their bearing on Kenya's economy. Such areas include agreements on agriculture,
trade related investment measures (TRIMS), and sanitary and phytosanitary measures
(SPS).
37
Agriculture
The Agreement on Agriculture is important since it is in this sector that Kenya has a
comparative advantage. The extent to which EU has compensated its farmers for price
fluctuations raises cause for concern. It is true that some subsidies are allowed that should
be phased out over a given time period. However, the sheer size of the compensation which
amounts to S£12 billion in the previous four years, and the fact that the level of
compensation has increased in each subsequent year raises questions as to the commitment
of EU in eliminating its farm subsidies11. Heavily subsidized products include wheat, beef,
dairy products and sugar. Market access opportunities for agricultural-based products,
which should result from changes in policies relating to export compensation and domestic
support, are likely to be nullified if the subsidies are not phased out in the transition
period. Kenya's potential for export growth lies in the agricultural sector. With the advent
of trade liberalization, Kenyan farmers have been faced with increasing competition from
imported farm produce that offers unfair price advantage to locally processed products. It
is probably this factor that led to the ban on importation of milk and milk products in
1996.
Sanitary and phytosanitary measures
Under the Agreement on Sanitary and Phytosanitary Measures, members are allowed to
take action necessary to protect human, animal and plant life or health in conformity with
the provisions of the act. Recent developments indicate that members are only willing to
comply to the letter of the agreement when it does not compromise their national interests.
In January 1998, The European Union banned the importation of fresh fish and fish
products from Kenya, Uganda, Tanzania and Mozambique ostensibly to safeguard EU
consumers from the risk of cholera. Though lifted in July 1998, this action was taken
without regard to the disciplines of the agreement, which provides that if a member is to
apply sanitary and phytosanitary measures, it has to prove scientifically that the product
in question poses a real threat to the health of consumers. Guidelines are provided that
require that the assessment of the risk is done on the basis of techniques developed by
relevant international organizations. This is to ensure that such action is not based merely
on fears or conjecture but that there is sufficient scientific evidence. Even after the risk
assessment has been done, and sufficient evidence has been gathered, an opportunity must
be given to the exporter to put in place measures that eliminate the health risk including a
time-frame for compliance. When imposing the ban, the EU made it clear that this was not
based on scientific evidence but rather a lack of credible system in Kenya to safeguard the
products from possible contamination. If this was not changed, the EU was categorical that
the products would be completely shut out of the EU market. Fish is a leading nontraditional export and Kenya exported fresh fish worth US$50 million in 1994, which
represents about 2% of total commodity exports from Kenya. There are, moreover, fears
that the ban may be extended to fresh fruits and vegetables, another leading nontraditional export from the country. The EU recently introduced controls that subject
38
imported fruits and vegetable to a 10% sampling for microbial control, a development that
is already affecting Kenya's exports of the products. This development is disturbing
considering that it is in these areas that Kenya has comparative advantage.
While the action taken by the EU goes against the multilateral rules enshrined in the
Uruguay Round/WTO, there is definitely some homework for Kenya to do. This temporary
ban caused considerable losses in the fish industry. The Ministry of Health, which is the
competent authority, needs to immediately embark on an action plan to address the
concerns raised by the EU. The SPS measures and systems outlined by the EU should be
strictly adhered to in order to restore confidence. In particular, the quality assurance
procedures that the EU has often raised concern over should be foolproof to avoid abuse.
This may entail capacity building both at the Kenya Bureau of Standards where the
sampling of food exports for contamination takes place and at the Ministry of Health.
Textiles and clothing
The imports of textiles and clothing have been restricted through bilateral quotas
negotiated under the Multi-Fibre Arrangement (MFA) by several developed countries since
1974. Quotas are disallowed under WTO agreements but these countries obtained
temporary derogation from the GATT rules. From the entry into force of WTO, a ten-year
transition period has been given for the bilateral quotas to be dismantled leading to the
reintegration of trade in textiles and clothing into the mainstream of WTO rules and
disciplines.
Kenya is among the countries whose exports of textiles and clothing have been restricted
through quota arrangements. Attempts to negotiate the removal of the quotas have not
yielded positive results, although there is a chance that the US Congress could remove the
quotas under the Africa Growth and Opportunity Bill passed in 1998 by the House of
Representatives before the expiry of the transition period. Before then, however, it is
important for Kenya to monitor the integration process, which should be carried out in
four stages: 16% of the products on the list, on the date of entry into force of the
Agreement; 17% at the end of the third year; 18% at the end of seven years; and 49% at
the end of the tenth year, i.e., 1 January 2005.
As Hughes (1997) of the WTO Textile Division notes, the key question is how the
transitional process of the WTO textile agreement will evolve over its remaining seven and
half years. Interestingly, a special safeguard mechanism exists that permits new quotas to
be used for protection under certain well defined circumstances. Hughes observed that
such measures were applied on 23 occasions in the first half of 1995 although the frequency
is declining. Another development is that producers of garments and textiles are migrating
to lower cost areas and developing new production arrangements that may complicate the
phasing out of the MFA. The United States has also raised concern on several occasions on
circumvention practices and demanded that exporting countries guard against
transhipment of garments and textiles. Further action in this area on the part of Kenyan
39
authorities should entail putting in place a surveillance mechanism to ensure that domestic
firms do not collude with foreign companies to tranship products. Also, the opportunities in
the agreement that allow the expansion of the quotas through growth rates should be
exploited to take maximum advantage of the U.S. and European markets. Bilateral quotas
are supposed to be increased by escalating growth rates of 16%, 25% and 27% by the end
of the tenth year.
6.
Implications of WTO disciplines for FDI and manufactured exports in Kenya
Foreign direct investment can play an important role in strengthening export capabilities.
This has not been the case in Kenya. As seen in Table 3, rates of FDI and net long-term
capital inflows have not only been highly volatile, they generally declined in the 1980s and
1990s. The FDI/GDP ratio fell from 1.37% in 1980 to 0.03% in 1993. It also has declined in
absolute terms when compared with the levels obtaining in the late 1970s12. Net long-term
capital inflows also dropped from 8% of GDP in 1980 to negative net flows in the 1990s. In
the latter period, these inflows have not been able to cover the balance of payments current
account deficit, so that the basic balance was in deficit. This pattern has also been reflected
in the domestic investment rate, which declined from 29.3% in 1980 to 16.9% in 1992,
before partially recovering to 21.1% in 1996.
Table 3: Evolution of investment rates and balance of payments in Kenya, 1980-1996
FDI/GDP,
%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
Net Capital inflows/ GDP, % Current
Gross
account/
Investment/
GDP, %
GDP, %
Long-term
Short-term
1.37
8.0
1.7
-12.3
29.3
0.15
5.9
1.6
-10.8
27.8
0.06
3.9
0.5
-7.4
21.8
0.17
3.3
0.7
-2.2
20.8
0.07
3.1
0.7
-2.9
20.7
0.22
-0.8
0.4
-1.5
25.5
0.39
1.4
0.4
-0.6
21.8
0.51
4.0
0.7
-6.2
24.3
-0.02
3.9
0.7
-5.4
25.0
0.74
7.4
0.6
-7.1
24.9
0.63
2.0
1.7
-5.4
23.7
0.22
1.7
0.0
-2.8
20.7
0.08
-2.0
-0.1
-1.2
16.9
40
1993
1994
1995
1996
0.03
0.8
-3.7
-0.8
-0.7
5.4
3.5
3.6
7.2
1.7
1.5
-4.5
-0.8
17.6
19.3
22.3
21.1
Source: Kenya, Economic Survey, various issues, and a World Bank
database for the FDI/GDP data
Kenya is currently in the process of drafting a new investment code that will streamline
investment laws and procedures. It is not certain whether the code will reserve investment
in some sectors exclusively for Kenyans, though, presently there are no laws that explicitly
discriminate against foreign investors. The 1989-1993 development plan indicated that
"private foreign investment is not expected to seek out opportunities in such strategic areas
as basic transport, telecommunications, and hydroelectric power", but this position has
changed with economic reforms and privatization and foreign investors have become
involved in these sectors. Once the review and harmonization of investment laws and
procedures has been completed, there will be a firm basis for negotiating the envisaged
Multilateral Investment Agreement.
The GATT/WTO has imposed inhibitions on uses of adverse trade related investment
measures (TRIMs) on foreign investment such as local content requirements, minimum
export requirements, trade balancing requirements linking use of imports to the ability to
export, product mandating for given markets and licensing requirements that may induce
more FDI to less developed countries, including Kenya. Developing countries have been
allowed five years (and the least developed seven years) to eliminate prohibited TRIMs
(Morrissey and Yai, 1995).
Improved market access may also induce investment, both local and foreign. Kenya could,
for example, benefit significantly from the winding up of the Multi-Fibre Agreement
(MFA). The MFA has been a highly restrictive form of trade discrimination, imposing
quotas on the exports of textiles and clothing from less developed to developed countries,
with severe losses in export earnings and allocative efficiency for some of the poor countries
(Blake et al., 1996). In 1994, for example, the U.S. government sharply limited textile and
apparel exports (mainly pillow cases and shirts) from Kenya, accusing Kenya of being a
transhipment point for Asian exporters seeking to evade U.S. quotas. In 1991-1994, Kenya
enjoyed a sixfold jump in its textile and apparel exports to the United States before the
imposition of the quotas. These exports peaked at $37 million in 1994, declining to $28
million in 1995. Kenya would benefit from a reopening of this market (Kenya is the fourth
largest textiles and clothing exporter from sub-Saharan Africa after Mauritius, South
Africa and Lesotho)13.
A significant impact of the Uruguay Round may arise from increased credibility of
41
domestic policies by providing a policy locking-in mechanism. This is because Africa is
viewed by investors as a high risk area, with the perceived high probability of policy
reversals a major deterrent to investment (Collier and Gunning 1994, 1997; Collier, 1996).
The high level of perceived risk partly reflects the long history of the use of economic
controls in the region. This is compounded by poor dissemination of information to
potential investors on the conditions in individual African countries and the region in
general. WTO may help reduce these perceived risks by acting as an "agent of restraint"
and therefore promote the investment required for building export capabilities.
WTO may offer two alternative ways of achieving lock-in (Collier and Gunning, 1997).
First, WTO is by design an external agency of restraint in the sense that a member country
binds itself by accepting the GATT/WTO provisions. In some areas, however, it offers
weak discipline as policies such as foreign exchange rationing are still legal under the WTO
rules. It also offers little defense against developed countries' protectionism, as there is
wide scope for anti-dumping, countervailing and safeguard actions under WTO. Second,
under the traditional GATT process of reciprocal concessions, African countries have
negotiating rights on a substantial component of their exports, for example to EU. Under
the GATT "request and offer system", an African country can request an EU member for
a reciprocal reduction of a tariff on its export if it is a major exporter of that product.
This cannot however provide the African country with the rapid improvement in
credibility which it needs.
7.
Conclusions
There is a consensus in the Kenyan economic literature that the performance of Kenya's
export sector has been quite poor and exports have grown less than the economy. The
export performance declined in the 1980s, before rebounding in the 1990s for both
traditional and non-traditional exports. Access to developed economies for traditional
exports (coffee and tea) has not been a major constraint. A large proportion of these
products are exported to the European Union where the applied tariff and non-tariff
barriers have been low.
This paper analyses the role of improved market access in enhancing Kenya's nontraditional exports. It specifically investigates the implications for market access from the
Uruguay Round of General Agreement of Trade and Tariff (GATT) signed in 1994. Among
the major domestic policies that have been implemented to enhance Kenya's capacity to
take advantage of the Uruguay Round and WTO arrangements are tariff, QRs, direct
export promotion policies and the exchange rate. Other policies important for export
performance relate to firms access to finance, prices and wages policies, and infrastructural
adequacies.
The European Union has historically been the largest single market followed by Africa,
particularly Uganda and Tanzania. The share of exports to Australia and the Far East
(mainly Japan, India and China), the United States and Canada, the Middle East and
42
Eastern Europe have been relatively unimportant.
A large proportion of leading non-traditional exports (73.2%) goes to the European Union.
Among these exports, we show that, in general, the incidence of tariff barriers is higher for
food and live animals (SITC 0) and alcoholic beverages (SITC 112). These products are
also, in general, subjected to stricter non-tariff measures (NTMs). The tariffication of
NTMs and the reduction of tariffs under the Uruguay Round is therefore likely to be of
greater benefit to Kenya's fish industry (SITC 034) and horticultural products (SITC 034062) compared with the other exports. These exports are however likely to be hurt by the
erosion of the general system of preferences (GSP) and those preferences that have been
provided to the least Developed countries (LDCs) embodied in the WTO agreements.
The GATT/WTO trade related investment measures (TRIMs) on foreign investment may
induce more FDI to less developed countries, including Kenya. Developing countries have
been allowed five years (and the least developed seven years) to eliminate prohibited
TRIMs. Improved market access may also induce investment, both local and foreign.
Kenya could, for example, benefit significantly from the winding-up of the Multi-Fibre
Agreement (MFA). A significant impact of the Uruguay Round may arise from increased
credibility of domestic policies by providing a policy locking-in mechanism. This is because
Africa is viewed by investors as a high risk area, with the perceived high probability of
policy reversals a major deterrent to investment.
43
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49
APPENDIX
Table A1: Market access conditions of Kenya's leading non-traditional exports to the EU
(1996)
SITC
HS (6digit)
Import
share, %
RCA
Total NTM
charges %
%
034
030420
030410
030379
030110
030269
030341
030490
1.48
9.66
1.57
0.38
0.04
0.86
0.03
36.2603
10.1608
0.0005
0.5681
0.3252
0.0893
0.4487
11.4
0
13.8 70
10.8 11
5.3
0
12.5
6
5.5 100
10.3 50
45
36
34
2
33
4
37
0
1
4
1
1
3
1
24
17
16
1
13
0
18
24
17
16
1
13
0
18
054
200559
071290
200551
200490
47.85
0.51
7.69
0.35
81.4611
0.2064
0.7996
0.0740
22.4
13.2
20.5
20.0
100
20
0
13
2
10
1
15
0
1
0
0
2
8
1
15
2
8
1
15
056
070820
070990
070810
070960
071022
121299
070310
070511
070930
070890
070970
071333
070920
070610
121292
071310
40.91
17.97
33.72
3.03
4.15
1.88
0.81
4.79
7.93
13.24
24.87
0.01
0.08
0.27
5.78
0.01
68.7661
8.3622
31.6882
1.0684
2.2650
1.3768
0.1641
0.5460
1.9148
3.0079
1.7205
0.0163
0.0252
0.0203
0.5349
1.1191
NA 0
11.8
0
10.6
0
5.7
0
16.8
0
0.7
0
11.2
0
NA
0
14.9 100
13.1
0
12.1
0
2.0
0
14.1
0
15.9
0
NA 100
2.0
0
12
50
5
6
1
2
13
0
6
4
1
3
18
5
1
3
0
0
0
2
0
1
0
8
0
0
0
0
0
0
0
0
12
6
5
4
1
1
13
0
6
4
1
3
18
5
0
3
12
6
5
4
1
1
13
8
6
4
1
3
18
5
0
3
057
080440
081090
080290
080132
080450
081010
080300
6.36
1.94
1.79
0.54
0.54
0.58
0.00
11.5467
0.6526
5.6824
1.3643
0.8557
0.2978
0.0500
5.0
9.4
1.2
0.0
4.0
13.1
18.7
6
14
5
1
5
16
3
0
0
2
1
0
0
0
6
14
3
0
5
16
2
6
14
3
0
5
16
2
50
0
0
0
0
0
0
0
National Lines
MFN ZER GSP LDC
080232
080430
080719
080410
080720
0.09
0.03
0.04
0.04
0.16
0.1032
0.1942
0.0220
0.0580
0.1065
7.0
7.9
1.3
0.6
2.0
0
0
0
0
0
1
2
10
8
1
0
0
0
0
0
1
2
10
8
1
1
2
10
8
1
058
200820
200819
200892
200850
200840
200899
200791
23.34
0.23
0.26
0.17
0.12
0.03
1.40
27.7154
0.2464
0.1210
0.2877
0.1634
0.0138
0.1785
23.2
12.7
20.2
22.0
23.8
20.9
25.2
68
0
100
100
100
100
100
16
13
50
19
13
50
9
0
0
0
0
0
2
0
14
13
46
0
4
43
9
14
13
46
0
4
43
9
059
200940
200920
200980
16.11
0.21
0.25
23.1362
0.2897
0.3923
23.3 33
25.6 37
24.3 100
6
4
44
0
0
0
5
3
33
5
3
33
112
220300
0.03
0.1270
18.0
0
4
0
4
4
265
530410
530490
530521
530529
22.60
12.66
0.59
8.84
72.4891
46.9373
0.7856
1.4462
0.0
0.0
0.0
0.0
0
0
0
0
1
1
1
1
1
1
1
1
0
0
0
0
0
0
0
0
278
252922
252921
253010
253090
20.38
3.55
0.26
0.04
15.2684
1.2469
0.3910
0.0372
0.0
0.0
0.0
0.0
0
0
0
0
2
2
2
2
2
2
2
2
0
0
0
0
0
0
0
0
422
151590
0.20
0.1771
9.1
0
15
2
13
13
431
152190
1.10
2.1357
0.8
0
3
2
1
1
542
300490
300420
300390
0.01
0.03
0.01
0.2698
0.2763
0.0631
0.0
0.0
0.0
0
0
0
8
7
5
8
7
5
0
0
0
0
0
0
553
330499
330590
0.05
0.17
0.2193
0.0681
2.6
2.6
0
0
1
2
0
0
1
2
1
2
611
410612
410422
410512
410410
410439
9.64
0.29
1.86
0.85
0.67
14.5867
2.3462
1.0818
0.5176
1.5245
2.0
3.4
2.2
4.0
6.7
0
0
0
0
0
1
2
2
5
2
0
1
0
2
0
0
1
0
2
2
0
1
0
2
2
51
410619
410431
410900
410519
410620
410520
2.03
0.18
3.56
0.20
0.06
0.02
3.0736
0.8836
0.0233
0.9501
0.0875
0.1231
2.0
6.6
3.0
2.2
3.6
3.6
0
0
0
0
0
0
1
4
1
2
1
1
0
0
0
0
0
0
0
4
1
0
1
1
0
4
1
0
1
1
661
680299
680229
680192
3.48
0.52
1.13
1.2970
0.3557
0.0547
2.0
2.3
3.1
0
0
0
3
1
3
1
0
0
2
1
3
2
1
3
665
701790
0.06
0.0313
4.1
0
1
0
1
1
851
640610
0.01
0.1583
3.6
0
6
0
6
6
Key:
RCA = Kenya's revealed comparative advantage for each product. It is calculated by
dividing the share of Kenya's export of a particular product in Kenya's total exports by the
share of world exports of that product in total exports. An RCA less that 1 indicates that
the share of a particular export in Kenya's export portfolio is smaller than the
corresponding world average.
Total charges = Average tariff charges plus additional import charges (excluding internal
taxes and other specific taxes).
NTM% = The NTM incidence indicates to what extent the national tariff line within a
basic HS item is affected by core non-tariff measures. For each national tariff line, the
NTM incidence is taken as:
0% if no NTM measure applies to this line
50% if an NTM applies to a part of the product specified under the national tariff
line
100% if an NTM applies to all products under the national tariff line, or if 2 or
more NTMS apply to a national tariff line
The NTM incidence at the HS 6-digit level is then calculated by taking the simple average
of the incidence for each national tariff line.
The core NTMs are QRs, finance measures (such as terms of payment and transfer delays
or queuing) and price controls.
52
Under National Tariff Lines: MFN = the number of tariff lines within the HS classification;
ZER = number of national tariff lines with zero tariff rate within the HS category; GSP =
number of lines for which the Generalized System of Preferences are granted; and LDC =
number of lines for which GSP is accorded the Least Developed Countries.
1. The destinations of coffee and tea and the applied tariff rates in these export markets in
1995 were as follows (%):
EU
USA
Canada
Egypt
Other
Coffee
68.1
5.6
1.3
0
25.0
Tariff
3.3
0
0
5
N/A
Tea
33.8
1.4
0.8
15.8
48.2
Tariff
0
0
0
30.0
N/A
Source: Kenya, Statistical Abstract and UNCTAD database
2. In contrast, the volume of crude vegetables n.e.s (which include cut flowers) increased
about two-and-a-half times, from 16,000 metric tons in 1980-1983 to 39,616 metric tons in
1995-1996, alongside an increase in prices from $2.1 to $2.8 per kg. Exports of tea and
crude vegetables have therefore increased their shares relative to those of coffee and
petroleum products in the 1980s through the 1990s.
3. This section draws on Mwega (1995, 1998).
4. The equilibrium RER is defined as the rate at which the economy would be at internal
and external balance for given sustainable levels of the other variables such as taxes,
international prices and technology (Edwards, 1989). The equilibrium RER therefore
varies continuously in response to changes in actual and expected economic fundamentals.
5. There was an upsurge in short-term capital inflows in 1994-1996 that caused an
appreciation of the real exchange rate.
6. In 1996, Kenya's financial system included 51 commercial banks, 23 Non-bank financial
intermediaries, 5 building societies, 39 insurance companies, 3 reinsurance companies, 10
development financial institutions, a Capital Markets Authority, 20 securities and
brokerage firms, a stock market, 12 investment advisory firms, 57 hire purchase
companies, 13 forex bureaus and 2670 saving and credit cooperative societies (Kenya,
Development Plan 1997-2001, p 36).
7. These are Industrial Development Bank established in 1973; Development Finance
Company of Kenya (1963); its subsidiary the Small Enterprises Finance Company of
Kenya (1983); Kenya Industrial Estates; and Industrial and Commercial Development
53
Corporation (1954); and Agricultural Finance Corporation.
8. Some of these were revoked in February 1997 to permit more imports in anticipation of
a drought in the country.
9. Kenya was also admitted to the Group of Fifteen (G-15) at its seventh summit held in
Kuala Lumpur in November 1997, a group created by the Non-Aligned Movement to
promote South-South cooperation.
10. Members of the committee in Kenya are the ministers in charge of East Africa and
regional cooperation (as chair), trade, and industrial development.
11. Financial Times, May 1997
12. The comparison reveals the following:
Nominal FDI, US$ million
Real FDI, US$ million
Source: World Bank database
1975-80 1981-86
1987-93
50.0
10.9
26.2
71.7
12.4
27.7
13. Information in this paragraph draws from The East African, September 15-21, 1997.
54