Rwanda expresses interest in joining the Kenya-EU EPA

According to an article published yesterday on The East African, Rwanda has expressed interest in joining the Economic Partnership Agreement (EPA) signed by Kenya with the European Union (EU) on 18 December 2023 and entered into force on 1th July 2024. History repeats itself. The EU started the negotiations of an EPA with the East Africa Community (EAC) in 2014, and Rwanda at that time became the other EAC Partner State, together to Kenya, that signed the agreement, on 6th September 2016. However, while Kenya went ahead by completing its ratification process (on 20 September of the same year), Rwanda decided in the end to no longer ratify it. After about 7 years, negotiations were resumed at bilateral level between the EU and Kenya, which agreed to sign an “interim” EPA with the EU, in the hope that the other EAC members will decide to join such agreement at a later stage. Now it seems that this day will come soon for Rwanda. ...Except in the case it will decide again to make a step back.

The reason why Kenya signed an interim EPA with the EU was due to a decision adopted by the EAC Heads of State during their 21st ordinary Summit of February 2021, where they directed that the individual EAC members that were willing to commence engagements with the EU at bilateral level were allowed to do so, based on the principle of variable geometry set out at Article 7.1(e) of the EAC Treaty. In reality, many observers noted that this decision was based on a wrong interpretation of such article, as this article has a purely internal relevance, not being applicable with regard to countries or trade blocks outside the EAC.

Differently from Kenya, the other EAC members have so far shown little or no interest to sign an EPA with the EU, essentially because all of them already benefit from a duty and quota free access to the EU market under a unilateral trade regime called “Generalized System of Preferences” or GSP, which the EU plans to abandon, following a decision of the WTO appellate body dated 2004 which concluded that such scheme, and more precisely the tariff advantages under the so-called "Drug Arrangements" (which were part of the scheme at the time and limited to certain developing countries) was in breach of the WTO rules. The EU reformed its GSP in 2005 to bring it into line with the panel’s conclusions, but some doubts about the compatibility of the EU GSP with the WTO rules persist.

The issue is that most of the EAC member States are not particularly happy about the Kenya's choice to sign an EPA, and in some cases are also contrary to the decision of the country to engage bilaterally with the EU.

GSPs are non-reciprocal preferential trade regimes whose objective is to facilitate the access of less developed economies to the markets of more industrialized countries. These regimes have been established in the 1970s’ based on a proposal made by a group of delegations from industrialized countries during the first United Nations Conference on Trade and Development (UNCTAD I), held in New York in June 1964. It was however only during the Second UNCTAD Conference held in New Delhi (March 1968), that such regimes were allowed (UNCTAD Resolution 21(II) of 26th March 1968), as a temporary measure. GSPs were designed as a waiver to the principle of the Most Favored Nation, which prohibits the then GATT and now WTO contracting parties from granting selective preferential access to their own markets. Initially, the maximum duration of these unilateral preference schemes was no more than 10 years (renewable only in exceptional cases). At the Tokyo Round in 1979, GATT members adopted a Decision (called "enabling clause"), that extended such waiver indefinitely. Today there are many countries and customs territories in the world that have introduced GSP schemes into their legislations. They include Australia, Canada, Japan, Türkiye, Norway, Switzerland, the United Kingdom and the EU, to quote a few of them. The United States also has a GSP, although it expired on December 31, 2020, but there is a proposal pending before the US Congress to reauthorize it, with a possible retroactive application.

Since most of EAC member States are categorized as “Least Developed Countries” (LDCs) by the United Nations, they can benefit from GSPs established by more developed nations, including the EU. This includes Rwanda, which is still classified as a LDC.

Now, the EU GSP has a particularity. It is made up of three sub-arrangements:

• the Everything but Arms (EBA);
• the general GSP (also called “GSP standard”); and
• the GSP+.

Each one of such sub-arrangements provides for distinct benefits and conditions, depending on the level of development of each beneficiary country. The most favorable, the EBA, is reserved to the LDCs, which is the status covered by all the EAC states, except Kenya. The GSP+.was developed to allow Sri Lanka to continue to export preferentially to the EU after the country graduated from LDC to medium-low revenue economy. A condition for being admitted to the GSP+ is that beneficiary countries must ratify 27 international (UN) conventions related to human rights, labour rights and environmental protection, as well as to climate change and good governance. Those Conventions are listed in Annex VIII of the Regulation (EU) 978/2012, that currently governs the EU GSP. To date only one African country (Cape Verde) benefits from the GSP+.

The EBA, the most favorable among the EU GSP sub-arrangements, allows the entry in the EU market of products originating from LDCs duty-free and quota-free, with the only exception of arms and ammunitions. Kenya, being categorized as a medium-low revenue economy, was benefitting from the less favorable sub-arrangement “SPG standard”, which granted tariff benefits only on 66% of tariff lines, in the form of full duty suspensions (0% duty), or tariff reductions of 3.5 percentage points, with the only exception of textiles and clothing, for which a 20% duty reduction applies. After signing the EPA Kenya lost access to the EU market under the GSP standard, being this new agreement the only framework that now governs the trade relations between the two parties.

Under the EPA, Kenya benefits already now from preferential access to the EU, while the dismantling of customs duties on goods originating from the EU will start in Kenya from the seventh year of the deal coming into effect, i.e., from 2031. This is what is generally referred as “asymmetric” nature of the EPAs.

Already in 2019 a case was filed to the East African Court of Justice (EACJ) to nullify the EPA with the EU based on allegations of violating the EAC Treaty. The petion however, was subsequently retired. More recently, a new petition was submitted in July 2024 by the Uganda-based Centre for Law Economics and Policy on East African Integration (CLEP-EA), which is still pending before the EACJ for discussion. The choice of Rwanda to enter into the EPA opens new perspectives on the future of the EU-Kenya EPA, but, above all, calls once again into question the ability of the EAC partner States to coordinate their respective trade policies in view of pursuing common (rather than individual) economic growth objectives.