Scrutiny of international agreements: Economic Partnership Agreement with Kenya, Trade in Goods Agreement with Norway and Iceland, and Free Trade Agreement with Vietnam
Chapter 1: Agreement drawn to the special attention of the House
Economic Partnership Agreement, done at London on 8 December 2020, between the United Kingdom of Great Britain and Northern Ireland, of the one part, and the Republic of Kenya, a Member of the East African Community, of the other part (CP 339, 2020)2
1.The Economic Partnership Agreement between the UK and Kenya (the ‘UK-Kenya Partnership Agreement’) was laid on 17 December 2020, and the scrutiny period is scheduled to end on 10 February 2021. It was considered by the International Agreements Committee on 1 February 2021.
2.The UK-Kenya Agreement is development-focused and therefore asymmetrical—it opens the market of the UK more than the Kenyan market. Its focus is on facilitating trade in goods, providing Kenya with duty-free and quota-free access to the UK market. Kenya, in turn, commits to a phased liberalisation of goods, but retains tariffs for some goods deemed sensitive domestically. The Agreement covers trade in goods and related provisions, fisheries, and development cooperation, with trade in services and other areas left to be negotiated under a rendez-vous clause.3
3.The precursor agreement to the UK-Kenya Partnership Agreement is the Economic Partnership Agreement between the East African Community Partner States and the EU and its member states (the ‘EU-EAC EPA’), negotiated in 2014.4 The members of the EAC are Burundi, Kenya, Rwanda, Tanzania, and Uganda, and South Sudan—but so far only Kenya has both signed and ratified the EPA. In addition, some EAC states have yet to sign the EPA, which means the EU Agreement has not been brought into effect.
4.Until the end of the Brexit transition period, Kenya enjoyed duty-free, quota-free access to the UK’s markets through the EU’s Market Access Regulation (MAR).5 As the UK did not replicate the MAR at the end of the transition period, Kenya would have faced an increase in tariffs without a trade agreement or other measures in place.6
5.One of the reasons why the other EAC members have either not ratified or not signed the EU Agreement is that as ‘least developed countries’ (LDCs) they already benefit from duty-free, quota-free access under the EU’s Generalised Scheme of Preferences (GSP) Least Developed Countries Framework.
6.By contrast, Kenya is the only country in the EAC which is not classified as a LDC and so does not benefit from the GSP Least Developed Countries Framework.7 Instead, Kenya is classified as a ‘lower-middle income country’, qualifying for the GSP General Framework, providing reduced rates of import duty only on certain goods, with other goods subject to most favoured nation (MFN) rates. The UK Government therefore decided to roll over the EU-EAC EPA on a bilateral basis with Kenya—thus securing preferential access for Kenya—even though the EU Agreement is not actually in effect.
Entry into force
7.The UK-Kenya Agreement has been provisionally applied since 1 January, pending the completion of full ratification procedures by the Parties. On 23 December 2020, the Parties agreed to a Memorandum of Understanding (MoU) which recognised that the necessary domestic procedures required to give effect to the UK-Kenya Agreement would not have been completed by 31 December 2020. The MoU allows the Parties to treat the provisions of the signed Agreement as having effect between them until its formal entry into force. It states that the Parties will use their best endeavours to bring the Agreement into effect within three months of the MoU coming into effect.8
Other EAC countries’ accession to the Agreement
8.The UK-Kenya Partnership Agreement is open to other EAC member states to join at any time. Article 143 enables them to make an accession request to the UK-Kenya EPA Council, which would review the impacts of accession and may decide on amending measures that may be required.
Potential implications of the Agreement for regional coherence
9.Concerns have been expressed that the UK-Kenya Agreement may have disruptive political and economic impacts on the East African Community, and during negotiations between the UK and Kenyan Governments in 2020, other EAC members expressed opposition to the two countries’ bilateral decision to roll over the EU-EAC EPA, expressing their preference to renegotiate a future deal as one trading bloc. To avoid Kenya facing UK tariffs at the end of the transition period, they reportedly asked the UK to establish a transitional mechanism that would temporarily continue to provide Kenya with Market Access Regulation-style conditions on a unilateral basis.9
10.Some civil society groups have also argued that the UK-Kenya Agreement could disrupt regional trade within the EAC and undermine regional integration.10 For example, the EAC has been a customs union since 2005, applying zero customs duties on goods and services within the bloc and applying a common external tariff to imports from countries outside of the EAC.11 The UK-Kenya Agreement could undermine this arrangement, as Kenya would be applying a separate tariff regime to the UK—under the Agreement, Kenya must eliminate customs duties for a substantial number of UK goods upon entry into force of the Agreement, and progressively lower and eliminate duties for many others.12 This difference in tariffs applied to UK goods exported to Kenya, as opposed to the other EAC countries, could result in increased border checks and other barriers between Kenya and other EAC members.
11.We acknowledge that rolling over the EU-EAC EPA with Kenya could indeed have been the most efficient option for maintaining Kenya’s preferential access to the UK market, and we also understand that there may be WTO non-compliance issues in adopting unilateral preference measures for Kenya. The Parliamentary Report and other explanatory materials, however, do not explain why the MAR system was not transitioned, nor what alternative arrangements were available or considered. The explanatory materials also do not provide an assessment of the potential disruptive consequences of the Agreement for the EAC as a trading bloc, in particular the Government’s response to the concerns set out in paragraphs 9 and 10 above.
12.Given this absence of information, we are unable to evaluate the precise consequences of the new tariff differential. But it does appear that Kenya’s divergence from the EAC’s common external tariff could have political and economic implications for the coherence of the EAC as a regional bloc.13 Even though deepening regional integration is one of the key objectives in the Agreement’s Economic and Development Cooperation chapter,14 there is thus a risk that the Agreement itself could serve to undermine regional integration. This could even call into question the Government’s commitment to supporting regional integration and regional trade as part of its wider international development strategy.15
13.We call on the Government to explain what other options it considered for ensuring continuity of trading arrangements with Kenya, and why they were not pursued. In particular, we call on the Government to explain why it did not replicate the EU’s Market Access Regulation. In addition, the Government should articulate what representations were made by the other EAC members and stakeholders; and explain how it has sought to evaluate and address their concerns.
14.The Government should also provide its assessment of the risks of the Agreement and its impact on the East African Community’s customs union, as well as an assessment of the implications of the bilateral agreement for regional integration in East Africa.
15.We therefore call on the Government to urgently publish a supplementary Explanatory Memorandum that addresses the points raised in paragraphs 13 and 14 above, ahead of a debate on the Agreement in the House. To enable proper scrutiny of the Agreement we ask the Government to extend the CRAG period, so that the scrutiny period only ends after a debate on the Agreement has taken place.
16.More broadly, we call on the Government to provide information in its explanatory materials on the political ramifications of trade agreements whenever significant concerns, such as those set out above, have been raised.
The UK’s trading relationship with Kenya
17.An overview of UK-Kenya trade is provided in Box 1.
|
Kenya is the UK’s 73rd-largest trading partner, accounting for 0.1% of total UK trade. In 2019, trade in goods and services between the UK and Kenya was worth £1.4 billion. Trade in goodsThe UK exports more goods to Kenya than it imports, with £384 million worth of exports, compared to £321 million of imports in 2019. Top goods exports to Kenya were vehicles, machinery and mechanical appliances, and pharmaceutical products. Imports from Kenya were mainly coffee, tea and spices, edible vegetables, and live trees and plants, which together represented approximately 80% of Kenyan goods imported by value.16 Trade in servicesIn 2019, the UK exported more services than it imported from Kenya, exporting £800 million in services and importing £607 million. The Parliamentary Report states that a detailed breakdown of types of services traded was not available for the UK’s trade with Kenya.17 |
18.HMRC has estimated that around 2,502 VAT-registered UK businesses exported goods to and 433 imported goods from Kenya in 2019. The Parliamentary Report explains that these figures are likely to be an underestimate, as they do not include UK companies providing services in Kenya.
Tariffs
19.The Agreement provides Kenya with the duty-free access to the UK markets from which Kenya benefited under the EU’s Market Access Regulation (MAR). The tariff preferences set out in the agreement for products being traded between Kenya and the UK will be the same as those in the EU-EAC EPA, even though these were never brought into force.18 As mentioned in paragraph 2, this means that Kenya would also eliminate customs duties for some UK goods and would progressively eliminate duties for other UK goods within a range of seven to twenty-five years.19 The elimination and reduction of Kenyan tariffs on UK goods could potentially have disruptive implications for the EAC common external tariff and, more broadly, for regional coherence, as explained in paragraphs 9 to 12.
Rules of origin
20.The UK-Kenya Agreement provides extended cumulation for EU materials and processing in British and Kenyan exports to one another. The Parliamentary Report notes that if cumulation of EU content and processing had not been allowed, some Kenyan exporters might have been unable to gain the duty-free access to the UK’s market that was allowed under the MAR during the transition period.
21.The UK-Kenya Agreement also allows cumulation to occur with other third countries where certain conditions are met, such as having a preferential trade agreement with an African, Caribbean and Pacific (ACP) state in place. This replicates the mechanism in the EU-EAC EPA.
Origin quotas
22.The EU-EAC EPA provided an inbound derogation for tuna, and the volume threshold was based on the size of the EU market. The UK re-sized the threshold to reflect the fact that the UK is a smaller market than the EU28, basing the new threshold on bilateral trade flows observed in recent years. The Parliamentary Report notes that given the very low historic trade levels, the impact on British producers and consumers will be limited.20
Bilateral safeguards
23.The EU-EAC EPA allowed one Party to apply a bilateral safeguard duty on imports from the other Party if there was a disturbance in a product market. In particular, if there was a disturbance in the EU sugar market, brought about by a fall in the price of sugar below a certain level, the bilateral safeguard could be triggered. The UK-Kenya Agreement transitions these provisions in line with the principle of technical replication, but in the absence of data regarding the appropriate level for the trigger price mechanism, the Parties have agreed to suspend the trigger price mechanism temporarily. The Parties will review the price trigger after entry into force of the UK-Kenya Agreement. The Government does not foresee this temporary suspension having an impact.21
The Cotonou Agreement and respect for human rights
24.The Cotonou Agreement provides a framework for the EU’s political, development and trade relations with 79 developing countries in the African, Caribbean and Pacific regions.22 The Cotonou Agreement ceased to apply to the UK at the end of the transition period, but its effect has been replicated, covering respect for human rights and the possible suspension of the Agreement as a last resort in the case of violations of human rights, democratic principles or the rule of law by the Parties.
Governance and amendments
25.The UK-Kenya Agreement replicates the joint institutions in full and largely replicates the amendment clauses in the EU-EAC EPA. The EPA Council is the main governance body established under the Agreement and will consider proposals for amendments submitted by the Parties.
26.The wording and consequence of this incorporated provision is unclear. It is not clear whether all changes by the EPA Council must be confirmed by the Parties, and which changes would be subject to parliamentary scrutiny under the Constitutional Reform and Governance Act 2010 (CRAG). While it may be that amendments to protocols and annexes are not subject to scrutiny under the Constitutional Reform and Governance Act 2010 (CRAG), the explanatory material is not clear on this point. It is regrettable that, over a year since we first raised these issues, the explanatory materials accompanying agreements still do not specify what parts of an agreement can be amended without parliamentary scrutiny.23
27.Section 25 of the Constitutional Reform and Governance Act 2010 sets out the definition of treaties which are covered by the Act. However, section 25(2) provides that the word “treaty” does not include “a regulation, rule, measure, decision or similar instrument made under a treaty (other than one that amends or replaces the treaty (in whole or in part)).” The Government has yet to provide us with a clear interpretation of this provision, nor has it agreed with us what it means in practice for parliamentary scrutiny.
28.In addition, the continued absence of a mechanism for the Government to highlight changes to treaties to Parliament causes a significant scrutiny gap. While we welcome the Government’s commitment to “working with departments to ensure that all amendments to treaties are published in the UK’s Treaty Series, including those that are not subject to CRAG”,24 proposals for how this would operate in practice have yet to be put forward. We do, however, note that Government officials have recently committed to updating the Committee on progress in due course.
29.We have repeatedly raised the issue of amendments to international agreements, including the lack of clarity in the Government’s explanatory materials. We urge the Government to engage with us to reach an agreed interpretation on the relevant principles that should be applied to determine whether an amendment should be subject to parliamentary scrutiny.
30.We also recommend that the Government provide a formal mechanism for notifying Parliament of changes to international agreements where they are not subject to the requirements of CRAG. This could include regular publication of amendments in the UK’s Treaty Series, as previously suggested by the Government.25
31.Article 144 has been added to the Agreement, allowing amendments to be made on accession of other EAC members, including changes to the title of the Agreement and the list of Parties to the Agreement.
Expanding the Agreement
32.The UK-Kenya Agreement replicates the rendez-vous clause in the EU-EAC EPA on areas for future negotiations to expand the agreement within five years of entry into force. The areas for future negotiations include trade in services, competition policy, investment and private sector development, environmental and sustainable development, intellectual property rights, transparency in public procurement and any other areas that the Parties might agree to cover.26 It is unclear how the other EAC members who may accede to the Agreement in future would feed into these negotiations and whether they would be subject to the five-year deadline starting from entry into force of the UK-Kenya Agreement. Some of the sectors covered by the negotiations may be sensitive for the other EAC members, and they may therefore wish to have more time to negotiate.
Territorial application
33.The Explanatory Memorandum (EM) states that the territorial application article in the EU-EAC EPA has been replaced by an article which ensures that the Agreement applies to the specified territories for which the UK is responsible, in the same way as the EU-EAC EPA would have applied. The EM states that the Agreement applies to Gibraltar for provisions not relating to goods or customs; to the Channel Islands and the Isle of Man for provisions relating to tariff and trade in goods; and to the Overseas Territories for some specific provisions on cumulation with respect to rules of origin.
Consultation
34.Although the Government’s EM states that consultation has taken place with Gibraltar, the Crown Dependencies and the Devolved Administrations, it does not set out whether, and if so what, concerns were raised. The Committee has repeatedly expressed concern at the lack of information on the substance of such consultation, and we reiterate that in future the Government should make clear not only that consultation has taken place, but whether concerns have been expressed and, if they have, what actions have been taken to address them.
35.We draw special attention to the Economic Partnership Agreement between the UK and Kenya on the grounds that:
- It is politically important and gives rise to issues of public policy that the House may wish to debate prior to ratification.
- The explanatory material laid in support provides insufficient information on the agreement’s policy objective and on how it will be implemented.
2 Economic Partnership Agreement, done at London on 8 December 2020, between the United Kingdom of Great Britain and Northern Ireland, of the one part, and the Republic of Kenya, a Member of the East African Community, of the other part, CP 339, 2020: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/945516/MS_9.2020_Economic_Partnership_Agreement_UK_Kenya_Member_of_East_Africa_Community.pdf [accessed 21 January 2021]
3 Rendez-vous clauses are often used in trade agreements and contain commitments to negotiate specific provisions at a later date.
4 Economic Partnership Agreement between the East African Community Partner States, of the one part, and the European Union and its Member States of the other part https://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153845.pdf [accessed 3 February 2021]
5 The EU’s Market Access Regulation provides duty-free and quota-free access to the EU single market for products originating in African, Caribbean and Pacific countries, provided the countries do not already benefit from the EU’s Everything But Arms scheme and have not yet ratified an Economic Partnership Agreement.
6 Although, as the UK decided to replicate the EU’s GSP Framework after the end of the transition period, it would still have qualified for reduced tariffs on certain goods under the new UK Generalised Scheme of Preferences for low-income and lower-middle income countries.
7 The General Scheme of Preferences (GSP) provides trade preferences, via reduced or zero tariffs, on imports from eligible developing countries into the UK. The UK decided to replicate the EU’s GSP at the end of the transition period. The GSP provides three tiers of tariff rates to eligible countries depending on their levels of economic development. These are: the Least Developed Countries Framework for countries classified as LDCs by the UN (zero import duties on all goods other than arms and ammunition), the General Framework for countries classified by the World Bank as low to lower-middle income (reduced rates of import duty on certain goods) and the Enhanced Framework for countries classified by the World Bank as low to lower-middle income that are economically vulnerable due to low levels of integration with the international trading system (zero import duties on certain goods).
8 Department for International Trade, ‘Memorandum of Understanding between the UK and Kenya’, 23 December 2020: https://www.gov.uk/government/publications/memorandum-of-understanding-between-the-uk-and-kenya-on-the-economic-partnership-agreement/memorandum-of-understanding-between-the-uk-and-kenya#section-2-entry-into-effect-of-the-kenya-uk-epa [accessed 26 January 2021]
9 Harry Holmes, ‘UK-Kenya deal creates “huge risks to regional trade”’, The Grocer (5 November 2020): https://www.thegrocer.co.uk/sourcing/uk-kenya-deal-creates-huge-risks-to-regional-trade/650084.article [accessed 21 January 2021] and Graham Lanktree, ‘UK-Kenya deal triggers East African trade tensions’, Politico (27 October 2020): https://www.politico.eu/article/uk-kenya-trade-deal-threatens-trade-in-east-africa/ [accessed 28 January 2021]
10 Trade Justice Movement, ‘Letter to the Secretary of State for International Trade’, (3 November 2020): https://www.tjm.org.uk/documents/briefings/Letter-Rt-Hon-Elizabeth-Truss-re-Kenya-FTA-031120-TJM.pdf [accessed 28 January 2021]
11 East African Community, ‘What is the Customs Union?’: https://www.eac.int/integration-pillars/customs-union [accessed 28 January 2021]
12 Annex II sets out the customs duties on products originating in the UK. Annex II (A) lists the UK originating goods for which customs duties will be eliminated upon entry into force. Annex II (B) lists the UK originating goods for which customs duties will be progressively abolished.
13 Gerard Erasmus, ‘The Kenya-UK post-Brexit Trade Agreement’, Tralac (23 November 2020): https://www.tralac.org/blog/article/15008-the-kenya-uk-post-brexit-trade-agreement.html [accessed 21 January 2021]
14 Articles 75 and 76 of Part V of the Agreement
15 See, for example: Foreign, Commonwealth and Development Office (FCDO), ‘Kenya – Strengthening Regional Economic Integration’ (22 April 2018): https://devtracker.fcdo.gov.uk/projects/GB-1-203357 [accessed 28 January 2021] and Department for International Development, Economic Development Strategy: prosperity, poverty and meeting global challenges (January 2017): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/587374/DFID-Economic-Development-Strategy-2017.pdf [accessed 28 January 2021]
16 Parliamentary Report, p 8
17 Parliamentary Report, p 9
18 Parliamentary Report p 18
19 Annex II sets out the customs duties on products originating in the UK. Annex II (A) lists the UK originating goods for which customs duties will be eliminated upon entry into force. Annex II (B) lists the UK originating goods for which customs duties will be progressively abolished.
20 Parliamentary Report, p 20
21 Ibid.
22 The Cotonou Agreement is shorthand for the Partnership Agreement between the EU and the ACP Group of States.
23 European Union Committee, Scrutiny of international agreements: lessons learned (42nd Report, Session 2017–19, HL Paper 387)
24 Department for International Trade, Government Response to the House of Lords International Agreements Sub-Committee Report: Treaty Scrutiny, Working Practices, (25 September 2020): https://committees.parliament.uk/publications/2742/documents/27116/default/ [accessed 28 January 2021]
25 Ibid.
26 Parliamentary Report p 21