Africa and the world trading system: a case study of Kenya (стр. 4 )

• 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)

• 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 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 action-oriented 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 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.

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 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 anti-dumping 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.

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 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

The highest policymaking organ in COMESA is the Authority, which comprises heads of state of the 22 member ESA, 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 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 payments[10].

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:

• 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. Sub-committees 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 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 inter-ministerial 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.