Trade Agreements are contractual arrangements between countries on their trading relationship. These trade agreements can be between two countries (bilateral) or among many countries (multilateral). Trade agreements are a tool used to reduce various unilateral barriers most countries use to regulate international trade. The barriers include tariff barriers, non-tariff barriers and outright prohibition.
As the world becomes a global village, there are numerous possible collisions of interest between nations and thus the possible unilateral trade barriers that can be imposed by nations are many. Moreover, some trade barriers are created for non-economic reasons such as desire to prevent foreign influence on a nation’s culture and traditions and national security reasons.
One of the first tasks for the potential exporter is to determine what trade agreements will influence their export activities to a given market. Depending on the nature of the agreement, your products could be more or less competitive in the target market. One should also bear in mind that these agreements can change; for example, special preferences granted to a specific product or country may be eliminated in future agreements, reducing the competitive advantage.
TYPES OF TRADE AGREEMENTS
There are many types of trade agreements that a country can be part of depending on the terms and concession agreed on by the participating bodies Some of the types of trade agreements are:
Bilateral trade agreements
These are agreements strictly between two countries that aims at improving the trading status between the countries and gives them access to each other’s market.
Regional trade agreements
The term regional trading agreement refers to a contract signed by two or more countries to promote free movement of goods and services between them. The regional trade agreement includes.
1.Free Trade Area - A free trade agreement eliminates all trade barriers between members, allowing them to freely exchange goods and services. The trade policies of each member still apply when it comes to dealing with non-members.
2. Preferential Trade Areas - It requires the least level of commitment from member countries to reduce trade barriers, despite the fact that they do not eliminate trade barriers within themselves. Additionally, preferential trade areas do not share common external trade barriers.
3. Custom Unions - Member countries of a customs union remove trade barriers among themselves and just adopt common external trade barriers.
4. Common Market - In a common market members remove internal barriers to trade, adopt common policies when it comes to dealing with non-members, and allow members to freely move resources among themselves.
5 .Monetary Union - In an economic union, members agree to eliminate all trade barriers among themselves and adopt common external barriers. They also allow free import and export of resources, adopt a set of economic policies, and ultimately use a common currency.
KENYA’S TRADE AGREEMENTS
Kenya is a signatory to a number of multilateral and bilateral trade agreements that open up market access opportunities for Kenyan exporters. The rate agreements include.
Regional Trade Agreements
Kenya is a member of the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) trade agreements within the African Region. The EAC partner states comprise of Burundi, Democratic Republic of Congo, Kenya, Rwanda, South Sudan, Tanzania and Uganda. COMESA partner states are Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Eswatini, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Tunisia, Uganda, Zambia and Zimbabwe.
Membership entails extending preferential tariffs to goods imported from member states subject to agreed conditions (the Rules of Origin). Goods originating in Kenya also enter into the other member countries at preferential rates. This provides an incentive to import from or export to other members of the regional trading bloc.
Generalized System of Preferences (GSP)
Under the GSP, a wide range of Kenya’s manufactured products are entitled to preferential duty treatment in the US, Japan, Canada, New Zealand, Australia, Switzerland, Norway, Sweden, Finland, Austria, and other European countries. Almost all agricultural products are covered in addition to footwear, luggage, handbags, leather work gloves, leather apparel, and watches.
Bilateral Trade Agreements
Kenya also has bilateral trade agreements with a number of other countries such as Argentina, Bangladesh, Bulgaria, China, the Czech Republic, EU, India, Iran, Lesotho, Nigeria, Pakistan, Poland, Romania, the Republic of Korea, Thailand, UAE and Russia. Under these agreements, Kenya and its
bilateral partners accord each other the MFN (Most Favoured Nation) treatment in all matters with respect to their mutual trade relations.
Additional agreements under negotiation are with Belarus, Czech Republic, Ethiopia, Eritrea, Iran, Kazakhstan, Mauritius, Mozambique, and South Africa.
African Continental Free Trade Area (AfCFTA)
Kenya was among nearly 50 African nations that signed a deal to create the AfCFTA in Kigali, Rwanda, on March 21, 2018, marking a historic milestone in the economic integration of the continent. The formation of a free trade area spanning Africa creates a single market.
As of May 2022, 54 countries were signatories, of which 43 (80%) had deposited their instruments of ratification. Eritrea is the only member of the AU that has not signed the agreement. Membership entails extending preferential tariffs to goods imported from member states subject to agreed conditions (the Rules of Origin). Goods originating in Kenya also enter into the other member countries at preferential rates. This provides an incentive to import from or export to other members of the regional trading bloc.
PREFERENTIAL TRADE ARRANGEMENTS
African Growth and Opportunity Act (AGOA)
Kenya has been a leading beneficiary of AGOA preferences and was one of the first African countries to export under the program. Current market preferences for Kenya’s export to the USA are unilateral and non-reciprocal. Kenya qualifies for duty free access to the United States of America (USA) market under AGOA. Over 6000 products are eligible for export to the USA duty and quota free under AGOA. Until the AGOA expires in 2025, Kenya can enjoy duty free access to the USA targeting the products across these eligible tariff lines.
U.S.- Kenya Commercial Memorandum of Understanding (MoU)
The United States and Kenya intensified efforts to bolster commercial cooperation under the bilateral commercial Memorandum of Understanding signed in June 2018, and works together to identify and prioritize trade and investment opportunities in strategic sectors including energy, health, digital economy, infrastructure, manufacturing, and agriculture.