By Spy Uganda Correspondent
Kenya’s recently completed trade deals have hit a dead end after Nairobi applied higher import duties on whiskies and wines from the United Kingdom and the European Union (EU) respectively, two jurisdictions with which it signed Economic Partnership Agreements (EPA).
While Kenya, in line with the East Africa Community (EAC) Customs Union, is applying a higher tariff of 35 percent on imported wines and whiskies to encourage local production, the two EPAs put the import duty at 25 percent. The deal with the EU is awaiting ratification in Brussels while the agreement with UK is operational.
The countries in the EU and UK, which produce Scotch Whiskey, Tequila, Champagne and Bourbon, are protected by a clause in the World Trade Organization (WTO) agreement that forbids their manufacture in other countries.
This has left Kenya in an awkward position as it is expected to implement a higher tariff of 35 percent in line with Common External Tariff (CET) under the EAC Customs Union.
“Under the EAC protocol, Kenya should adopt the EAC Common External Tariff (CET),” said Robert Waruiru, a tax expert.
“The EPA gives reciprocal lower rates for imports from the EU…perhaps the push (by Kenya) for a revision of the CET bands.”
In July 2022, the EAC, an eight-member free trade area to which Kenya belongs, increased the import duty on spirits and wines to 35 percent, in what was aimed at encouraging local production.
However, this tariff is at variance with the 25 percent tariff contained in the two EPAs.
Kenya, which entered into these agreements without the other seven EAC member states, has indicated that it will be lobbying the EAC Council of Ministers to lower the upper band of the CET in what is aimed at re-aligning with the tariffs in the two EPAs. It was not immediately clear if the push for the reduction was to re-align with the two EPAs.
In the EPA with the UK—made up of England, Scotland, Wales and Northern Ireland—import duty on cars and whiskies from the European nation was retained at 25 percent. While duties on imported cars from the UK have been retained at 25 percent, tariffs on whiskies and other spirits such as Gin produced in the UK, are slapped with a 35 percent duty.
Treasury Cabinet Secretary Njuguna Ndung’u noted that the EPA has a standstill clause, saying “the parties agree not to increase their applied customs duties for products subject to liberalization under this agreement”.
“The tariff concessional rates just like for Comesa or AfCFTA are administered based on Rules Origin Criteria, so Kenya will monitor the UK imports/exports under the EPA trade arrangements in line withe provisions in the schedule,” he said.
In 2021, Kenya imported hard liquor, mostly whiskies, from the UK, made up of England, Scotland, Wales and Northern Ireland, valued at $23.7 million (Ksh3.85 billion), according to the Observatory of Economic Complexity (OEC), a data visualization platform that at started at MIT.
In the same year, Kenya imported wines valued at $2.01 million (Ksh326 million) from France, one of the EU member states, according to the OEC data. Higher tariffs were aimed at promoting local production of these products.
However, a source at the East African Breweries Limited (EABL), one of the largest alcohol producers in the region, said that under the geographical indication clause of the WTO agreement on Trade Related Aspects of Intellectual Property Rights, products such Tequila, Scotch Whiskey, Bourbon, Roquefort and Champagne are protected, and that charging a higher duty hurts major importers of UK whiskies such as EABL.
By charging a higher duty of 35 percent means that Kenya collected an additional Sh340 million in taxes, hurting companies such as the EABL, a major importer of whiskies from the UK.
“Therefore, their manufacture in other countries is prohibited and licensed exclusively [to] the countries they originate from, which determines the product quality’s, reputation, or other characteristics,” said the source.
According to the source, since 2022, imports of Scotch Whiskey, whose popular version in the local market include Johnie Walker brands, have dropped by 24 percent in volumes while exports from Kenya have dropped by 42 percent.
There are also fears that countries with which Kenya has signed the EPA agreement, the EU and UK, might reciprocate.
In the Medium Term Revenue Strategy, 2023 Kenya says it will push for the lowering of the higher band of CET from 35 percent to a range of between 15 and 20 percent, citing challenges in implementing the multiple rates.
Under the EAC implements a four-band CET, starting with a minimum CET rate of 0 percent for raw materials and capital goods; 10 percent for intermediate goods not available in the region; 25 percent for intermediate goods available in the region and 35 percent for imported finished products available in the region.
“These multiple rates provide differential protection to industries, especially in the manufacturing sector thereby, providing higher incentives for downstream industries relative to upstream industries,” said Treasury.
The Treasury added the multiple rates also created classification disputes resulting in delays in cargo clearance.
“To address these challenges, Kenya will request for duty free for all primary raw materials/inputs and capital goods and one common duty rate in the range of 15 to 20 percent for all other imported goods for consideration by the EAC Council,” added Treasury.
In the EU-Kenya EPA, it was acknowledged that the decision by Kenya to go alone in signing the EPA was expected to present a challenge in case there is an adjustment of tariffs.
