Kenyan exporters win key WTO concession

Business Daily Africa, July 18, 2007

By Allan Odhiambo

Kenya has won a major concession from the World Trade Organisation establishing a degree of stability in the increasingly competitive export market.

The deal, which allows the country to continue offering export subsidies in the next eight years, came amid fears that the country would be struck out of the list of eligible member states based on the economic recent upturn.

A statement from WTO headquarters in Geneva said the committee on subsidies and countervailing measures (SCM) had granted Kenya and three other developing nations, including Sri Lanka, Bolivia and Honduras the right to benefit from the extension despite the possibility of being graduated from the list of qualifiers before 2015.

Provision of subsidies is granted to WTO member states with per capita Gross National Product (GNP) of less than $1,000 per year.

There had been fears the subsidies committee would strike out countries such as Kenya from the list of qualifiers based on a recent surge in the rate of growth in their economies.

Kenya’s economy grew by a margin of 6.1 per cent in 2006 and is expected to perform better this year.

“We negotiated for this exemption because we felt we had not evolved enough to phase out the subsidies which are a key tool of development,” Mr Elijah Manyara, a senior deputy director of External Trade at the Ministry of Trade and Industry said. “At the current rate of growth we may surpass the limit in about five years,” he said.

Analysts however warned that there is little for Kenya to gain from the extension since the country lacks the capacity to offer any subsidies.

“We have very little subsidies on export trade because the economy cannot afford to sustain them. Even the small areas such as research remain largely donor funded with little coming from government,” Dr John Omiti, a researcher with the Kenya Institute of Public Policy and Research (Kippra) said.

The WTO defines a subsidy as a financial contribution by a government or any public body that confers a benefit to productive sectors of the economy.

Rich and developed nations such as the US have for decades supported their industries with huge subsidies triggering protests from poor nations. The subsides come in the form of prohibited, actionable and agricultural subsidies.

Prohibited subsidies are those that directly affect trade and most likely to affect other WTO members adversely, while actionable ones are those that support the production chain and may not be prohibited by law but can be challenged through multilateral dispute settlement or countervailing action in the event that they cause adverse effects on the interest of another member.

There are also agricultural subsidies that cover agricultural products in terms of both domestic support and those issued in this category are not prohibited by law although they remain counteravailable.

In Kenya, firms within the Export Processing Zones (EPZ) enjoy export subsides in the form of exemption from duty charges even though most players within the zones maintained the gestures are insufficient and had resulted in unfair competition in the international markets.

“What we have in Kenya in terms of exports subsidies is so little compared to others such as the EU. For instance the EU gives subsides of up €300 million which is even more than the total aid to Sub-Saharan countries,” Mr Victor Ogalo, of the Centre for International Trade Economics and Environment (CUTS) said.

The Agreement on Subsidies and Countervailing Measures provides for an eight-year transition period (until end 2002) for most developing countries to eliminate export subsidies.

Under procedures adopted in November 2001 at the Doha Ministerial Conference, the SCM Committee may grant annual extensions of the period to these countries until end 2007, subject to annual review of transparency and standstill obligations.

Consultations on another extension began in April 2006 in response to a proposal from Barbados and other developing countries that have received extensions of the transition period.

Barbados said they needed the policy space to maintain these programmes, which are important components of their development programmes.

A draft decision reached by the committee in May and June this year states that the continuation of extensions shall be subject to annual reviews by it (the committee) based on updating notifications from the members in question.

These members shall provide an action plan for eliminating export subsidies for the annual review to be conducted in 2010.

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