US-Kenya trade negotiations: A chance to get it right



Anabel González | Peterson Institute for International Economics

The United States and Kenya recently announced that they would begin negotiations on a bilateral trade agreement. If successful, the United States would forge its first bilateral trade accord with a sub-Saharan African country; for Kenya, it would also be the first of its kind with an advanced economy.

If they get it right, the pact would present a great opportunity for both: Kenya would be able to modernize and open its economy to foreign direct investment (FDI) and growth, and the United States would develop a modern framework to govern trade relations with an important African partner, which could serve as a template for trade agreements with other African economies, allowing it to tap into the region’s market potential and catch up to China’s presence in this part of the world.

Kenya currently enjoys unilateral trade advantages under the US Generalized System of Preferences (GSP), which benefits poor countries globally, and the African Growth and Opportunity Act (AGOA). Both are designed to provide access to the US market for eligible countries. But these preferences, while useful, are not a strategy for trade growth. They are limited to tariffs, can be unilaterally revoked—AGOA expires in 2025—and are eroded each time the United States grants more secured market access to another partner.

As important, lack of reciprocal liberalization commitments in these programs reduces their potential to drive domestic reforms that promote more efficient use of resources in the beneficiary country, limiting the expansion of its exports, and misses the opportunity to signal commitment to an open, business-friendly environment. These are benefits Kenya does not get from a preferential program.

Moving countries from unilateral preferential schemes to reciprocal agreements is a long-standing US trade policy objective, undertaken when Central American countries moved from the Caribbean Basin Initiative to the Central American Free Trade Agreement in the early 2000s. Since then the United States has wanted to enter into free trade agreements (FTAs) in Africa as well.

A major concern about potential US-Kenya negotiations is that the parties could settle for a limited deal. Kenya would benefit from a deep preferential trade agreement, but it needs time to forge such an agreement and align its domestic political economy to support it. Kenya needs to revise some of its current trade policies and practices and tackle controversial issues head on.

Plenty of challenging issues will need to be sorted out: high import tariffs on dairy, corn, and other products; sanitary and phytosanitary barriers, like import bans on genetically modified products or complex requirements on meat, dairy, and poultry; restrictions on government procurement; trade barriers in insurance and telecommunication services; and restrictions on FDI in combination with local requirements, among others.

Practices such as closing borders or banning imports, like the recent episode of blocking Uganda’s milk supply, will come under pressure. Open consultations with the private sector, good mechanisms to improve coordination among government agencies, and broad communication initiatives would help Kenya get its domestic political economy right. In parallel, Kenya should address some of the main problems impeding private sector growth.

But for US-Kenya negotiations to deliver, Washington needs to move away from the one-sided bilateral deals recently favored by the Trump administration and find the right template. The agreement should also be designed to effectively support regional integration.

Two-way trade in goods between the United States and Kenya amounted to over $1 billion in 2019; at $391 million, US exports to Kenya included aircraft, plastics, machinery, and cereals; at $667 million, main US imports from Kenya comprised apparel, nuts, titanium, and coffee.

The United States is Kenya’s third largest export market and its seventh largest source of imports. With Kenya’s economy growing at an average 5.6 percent for the past five years, and its leadership position as the trade heart of East Africa widely recognized, there is significant potential to expand the relationship.

Kenya has been one of the largest beneficiaries of AGOA. Thanks to increased FDI, in 2018 it was the number one apparel exporter from the region to the United States, with $4.7 billion in cumulated exports since the start of the program in 2000. But to effectively move into a reciprocal relationship with benefits for both parties, it is critical to consider the following points: First, recent US trade deals are not suitable models for Kenya. 

The drivers for a US-Kenya trade accord are not the same, so the right framework needs to be found. The US-China and US-Japan deals are very limited in scope, with neither reciprocal access to the US market nor binding enforcement mechanisms. The United States-Mexico-Canada Agreement (USMCA) includes some positive novel provisions, such as those on digital trade, but its protectionist approach toward rules of origin and intrusive plant-level labor and environmental inspections could restrict the pact’s potential and increase litigation and uncertainty.


To view the full blog, click here.