Africa and the world trading system: a case study of Kenya (стр. 6 )

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 long-term 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 sub-Saharan 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. The report also indicated that in the next ten years, it is not likely that total sub-Saharan 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 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.

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).

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 subsidies[11]. 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 non-traditional 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 non-traditional export from the country. The EU recently introduced controls that subject 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 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 1970s[12]. 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,

	FDI/GDP, %	Net Capital inflows/ GDP, %	Current account/ GDP, %	Gross Investment/ GDP, %
		Long‑term	Short‑term
1980	1.37	8.0	1.7	‑12.3	29.3
1981	0.15	5.9	1.6	‑10.8	27.8
1982	0.06	3.9	0.5	‑7.4	21.8
1983	0.17	3.3	0.7	‑2.2	20.8
1984	0.07	3.1	0.7	‑2.9	20.7
1985	0.22	‑0.8	0.4	‑1.5	25.5
1986	0.39	1.4	0.4	‑0.6	21.8
1987	0.51	4.0	0.7	‑6.2	24.3
1988	‑0.02	3.9	0.7	‑5.4	25.0
1989	0.74	7.4	0.6	‑7.1	24.9
1990	0.63	2.0	1.7	‑5.4	23.7
1991	0.22	1.7	0.0	‑2.8	20.7
1992	0.08	‑2.0	‑0.1	‑1.2	16.9
1993	0.03	0.8	5.4	1.7	17.6
1994		‑3.7	3.5	1.5	19.3
1995		‑0.8	3.6	‑4.5	22.3
1996		‑0.7	7.2	‑0.8	21.1

Source: Kenya, Economic Survey, various issues, and a World Bank