This time for Africa - A US-Kenya FTA a harbinger for change?

(Courtesy gtreview.com)

News of a trade deal between the United States and Kenya, the first sub-Saharan nation that the US is negotiating with, has been doing the rounds for a while. The first one with Africa by the United States was with Morocco. News of the trade deal is found here, here, here and here.

The US objectives for the FTA are clear and are here. The negotiating objectives are clear. Kenya's objectives and mandates are not spelled out in the public domain.The China factor in motivating this negotiation is another looming question.

Will it be a gold standard FTA? Will it be an agreement that all other African and developing countries will benchmark when they negotiate, if at all, with the United States?

Anabel Gonzalez predicts that this FTA could be a template for future FTAs for Africa here. She argues that it should be a deep, trend setting FTA much beyond the USMCA:

First, recent US trade deals are not suitable models for Kenya. The drivers for a US-Kenya trade accord are not the same, so the right framework needs to be found. The US-China and US-Japan deals are very limited in scope, with neither reciprocal access to the US market nor binding enforcement mechanisms. The United States-Mexico-Canada Agreement (USMCA) includes some positive novel provisions, such as those on digital trade, but its protectionist approach toward rules of origin and intrusive plant-level labour and environmental inspections could restrict the pact’s potential and increase litigation and uncertainty.

Africa’s friends in the US Congress should push away from the USMCA model in favour of more “traditional” US FTAs. The kind of rules negotiated in the Trans-Pacific Partnership, with the type of commitments made by Vietnam in that negotiation, are worth exploring. A deep FTA would cover trade in goods and services, investment, intellectual property, and government procurement; secure access to each party’s markets with appropriate tariff phase out periods; include rules-based dispute settlement mechanisms; be of indefinite duration; and avoid unnecessary constraints. If for political reasons, a short-term deal is favoured, it should be crafted in a way not to impede a better agreement later. Capacity-building measures should accompany the trade accord.

On the criticality and the future repercussions of the US-Kenya trade agreement for other aspirants, the Centre for Strategic and International Studies opines:

While Kenya and the United States both wanted a bilateral negotiation, they are also aware of the larger repercussions of the United States using this agreement as a model for the future. The priorities and compromises Kenya could make would have significant implications on future deals. Though no details have emerged thus far of what will be included, the second U.S.-Kenya Trade and Investment Working Group meeting in November gave some indication as they discussed “services, digital trade, intellectual property, agriculture, environment, customs and trade facilitation, technical barriers to trade, labor, and state-owned enterprises.” Of these nine areas, the three topics that will be watched most closely are the agreement’s handling of labor, the environment, and customs and trade facilitation.

A CRS report outlines the difficulties that the negotiation may face in the near future considering the varied development paradigms, aspirations and domestic compulsions in both economies:

The significant economic development disparities between the two countries suggest possible differences in negotiating priorities. A key challenge will likely be to establish a framework for the talks that can achieve the ambitious level of commitments Congress directs the Administration to seek in FTAs.At the same time,such a framework must remain politically and economically viable in Kenya amidst domestic pressure to maintain protections for import-sensitive or nascent industries. Potentially contentious topics include the timing and extent of tariff liberalization including on agricultural goods;rules on intellectual property rights, investment, and data flows; and the level of labor and environmental protections.The Trump Administration describes the talks as an opportunity to develop a “model” FTA, but has not specified what changes from past practice this may entail. U.S. FTA talks with the South African Customs Union, which were suspended in 2006 in part due to divergent views over scope, highlight the importance of establishing clear parameters for the negotiations at the outset. 

Brookings has identified the digital services tax issues as one of the irritants in the negotiations:

Taxes on data. Few countries have advanced as quickly in the use of mobile-based financial services and digital transformation as Kenya. In an effort to derive more revenue from digital transactions, the government recently imposed two taxes: A 1.5 percent digital services tax, which will take effect on January 1, 2021 and an earlier withholding tax charged on “marketing, sales promotion and advertising services provided by non-resident persons.” American technology companies find these taxes discriminatory. In fact, last month, the U.S. announced tariffs on some French goods in retaliation for France’s unilateral digital services tax targeting American companies. While this matter has not been directly linked to the trade talks, it remains to be seen how the U.S. might approach this issue in the negotiations. How will efforts to resolve this matter in the OECD factor into discussions between the parties?

One would have to watch the outcomes very closely to understand the impacts for Africa as well as the developing world. would it be a gold standard agreement or a tempered down version? Would it be an incremental stage  agreement addressing the hot issues of agriculture, digital trade, digital services tax, intellectual property and labour in the second stage? The issue of dairy products flooding the Kenyan market are already beginning to be raised. These are some of the sensitive issues that the negotiations would have to address on the way.

Let the negotiations begin!