TRALAC - Trade Law Centre

Kenya, US eye open-sky pact to spur trade

Monday, 30 June 2008

Source: Business Daily (Kenya)

The profile of the US-Kenya bilateral trade looks headed for a lift as traders prepare to tap into fresh opportunities that are expected to come with the new open-sky treaty between the two nations.

For many years, trade between the two countries has been hindered by logistics problems caused by lack of direct flights that would have ensured efficient and speedy exchange of goods and services. Traders have had to do with more expensive and inconvenient connections, especially through Europe, adding to their operational costs.

But last week marked a milestone on the already impressive bilateral ties when US and Kenyan officials signed a deal allowing for direct flights.

“That (direct flights) is what we have been looking to in order to access new fronts in the US market,” Jane Ngige, CEO Kenya Flower Council, said.

Statistics from the US Department of Commerce showed that the value of bilateral trade between the two countries hit the US$910 million mark in 2007 compared to US$706 million in 2001, with analysts projecting a steady growth in the coming years.

A motivating factor within Kenyan trade circles has been the fact that the balance of trade between the two countries has been improving gradually over the years in favour of Kenya— thanks to various initiatives such as the African Growth and Opportunity Act (Agoa) in which the US passed a legislation to substantially open up its market to some 37 designated Sub-Saharan Africa countries, including Kenya.

The Agoa pact came through as a supplement to then existing US trade arrangements with developing nations and sought to expand the duty-free benefits that were previously only available under the Generalised System of Preferences (GSP).

For instance, as at last year the balance of trade between the two nations had halved to US$ 259 million compared to 2001— an indication of the increasing competitiveness of trade relations between the partners.

It would also be important to note that as at 2007, the returns from the Agoa initiative accounted for the bulk of Kenya’s total trade with the US, fetching some US$255 million against the country’s overall bilateral trade returns worth US$325 million.

Latest statistics showed that duty-free access to the US market under the combined Agoa / GSP programme currently covers about 7,000 product tariff lines, in addition to about 1,800 product tariff lines that were added to the GSP system when the Agoa legislation came into existence. The line products include agricultural products, wine, footwear, selected motor vehicle components, chemicals, steel and apparel.

Several Kenyan products, notably clothes and agricultural produce are big beneficiaries of this arrangement in which import duty is lifted on all eligible African products and preferential market access granted upon compliance with set Rules of Origin (ROO).

In 2007, Kenya exported textile and apparel worth US$250 million to the US market alongside agricultural produce worth US$52 million over the same period.

And with the newly “opened-up skies”, analysts said key growth sectors covered under the Agoa pact have a chance to grow their businesses once the direct flights begin. Further good news for such sectors is that although the Act originally covered the eight-year period from October, 2000 to September 2008, amendments signed into law by US President George Bush in July, 2004 further extend Agoa to 2015—meaning more time to engage in business.

Image The number of tourists from the US is expected to increase with the introduction of direct flights as travel becomes easier.

“The value of direct flights is huge and we want to make it a priority in helping growth of business between the two countries. Even investors will have a chance to come into Kenya and see what opportunities existed for them,” US ambassador to Kenya, Michael Ranneberger said.

Players in the Kenyan horticulture sector have in the recent years been aggressive in tapping opportunities presented under this market. For instance, since 2005, groups of growers from Kenya have graced the annual Miami Flower Show to market their produce.

“The new deal would help us diversify our markets in US that has been largely reliant on supplies from South America,” said Mrs Ngige.

South American producers mainly supply large headed rose flowers to the US market but Kenyan growers look to the new opportunity to make shipments of small and middle-head roses to the market. The horticulture sector is considered critical today having surpassed tourism as the highest foreign exchange earner.

Horticulture last year fetched the country Sh70.3 billion.

Players in the Kenyan horticulture sector have had to do with the inconvenience of their produce first going to South Africa and Netherlands before finding their way to the US.

“ It has a been a funny scenario of produce being shipped to opposite directions before it is finally taken to the designated market and this comes with extra costs that are not necessary,” said Mrs Ngige.

Worse still ,some of the produce has been bought by middle-men and shipped to America at higher rates but under different labelling.

“It is sad when Kenyan products have to be re-exported from other destinations to the US market simply because of flight hitches,” the US envoy said.

Players in the coffee industry are also alive to the opportunities that would come with the direct flight arrangement especially with regard to the marketing and sale of speciality coffee.

Bitten by the healthy living bug, most coffee enthusiasts in America and other developed nations today prefer speciality products they consider “healthier” — a development that most producers world over including Kenya have fast come to appreciate because such products also attract premium earnings. Large dealings in speciality coffee also gives growers an opportunity to by-pass the surplus ordinary coffee market.



“ Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of Kenya’s bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.


Other regularly updated trade statistics on AGOA.info include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.