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May 1, 2020
U.S.-Kenya FTA Negotiations
On February 6, President Trump and President Uhuru
(absorbing 9% of Kenya’s exports). In contrast, Kenya’s
Kenyatta of Kenya announced their intent to begin free
largest trading partner, China, accounted for 3% of Kenya’s
trade agreement (FTA) negotiations. If successful, it would
exports in 2019 ($147 million of Kenya’s reported $5.8
be the first U.S. FTA with a country in sub-Saharan Africa.
billion total) while supplying 21% of its reported imports
Congressional interest may include: (1) Congress’s
($3.6 billion of $17.1 billion). In 2019, the United States
constitutional authority to regulate foreign commerce, such
reported a goods trade deficit with Kenya, with U.S. exports
as setting U.S. trade negotiating objectives, and considering
of $375 million and imports of $667 million. U.S. exports
FTAs through implementing legislation; (2) the FTA’s
were concentrated in plastics ($58 million), machinery and
potential effects on the U.S. economy, and trade and foreign
electrical machinery ($58 million), aircraft ($55 million),
policy implications; and (3) mandates in the African
and wheat ($27 million). Imports consisted mostly of
Growth and Opportunity Act (AGOA, P.L. 106-200, as
apparel ($454 million), macadamia nuts ($55 million),
amended), in which Congress directed the President to seek
titanium ores ($52 million), and coffee/tea ($41 million).
African FTA partners and granted the region tariff benefits.
U.S. imports from Kenya have grown on average by more
than 10% annually since 2001, when AGOA’s tariff
Kenya is not a major U.S. trade partner in global terms, but
benefits took effect (Figure 1).
it is one of Africa’s most dynamic economies and the
second-largest beneficiary of AGOA’s tariff benefits,
Figure 1. U.S. Goods Imports from Kenya
excluding crude oil. The United States views Kenya as a
strategic partner in the region: the country is a major
beneficiary of U.S. security and foreign assistance, and a
hub for U.S. security initiatives in the region. Kenya hosts
the largest U.S. diplomatic mission on the continent.
On March 17, the United States Trade Representative
(USTR) notified Congress of its intent to begin negotiations
with Kenya, as required under Trade Promotion Authority
(TPA) at least 90 days before negotiations commence. This
means talks may begin as early as mid-June under TPA
rules. USTR outlined four goals for the agreement: to serve
as a model for future U.S. FTAs in Africa, to contribute to
Source: Data from U.S. International Trade Commission.
regional integration efforts, to build on AGOA objectives,
and to expand U.S. trade and investment ties with Africa.
Notes: African Growth and Opportunity Act (AGOA) figures
include imports under the Generalized System of Preferences (GSP).
U.S.-Kenya Economic Ties
Tariff Rates and Other Trade Restrictions
Kenya has achieved an average GDP growth rate of 5.9%
over the past decade. However, it remains a lower middle-
As members of the World Trade Organization (WTO),
income country, with GDP per capita of just under $2,000
trade between the United States and Kenya is governed by
in 2019, and 83% of employment in the informal sector as
WTO commitments , including each country’s most-favored
of 2017. With almost 40% of its population of roughly 50
nation (MFN) tariff rates —uniform rates applied to all other
million under age 15, a coming surge in the labor force will
WTO members. The United States, however, provides
present both challenges and opportunities for future growth
unilateral preferential tariff treatment (below MFN rates) to
prospects.
most Kenyan exports through AGOA. AGOA is similar to
the Generalized System of Preferences (GSP), but builds on
Currently, Kenya’s economic relationship with the United
GSP by providing duty-free treatment to a broader range of
States is concentrated in trade in goods. The U.S. Bureau of
U.S. imports. Kenya is a member of the East African
Economic Analysis does not provide official statistics on
Community (EAC) customs union and shares a common
U.S.-Kenya services trade due to its low value. Nearly all
external tariff schedule with the four other EAC members
bilateral investment activity is comprised of U.S. foreign
(Burundi, Rwanda, Tanzania, and Uganda), although it
direct investment (FDI) in Kenya, valued at $380 million in
applies its own tariff rates on a limited number of products.
2018. Majority-owned foreign affiliates of U.S.
multinational firms employed 5,900 people in Kenya in
U.S. Tariffs. In 2019, nearly 80% of U.S. imports from
2017 (latest data available), with total sales of $1.0 billion.
Kenya entered duty-free under either AGOA or GSP, and
remaining imports were largely duty-free on an MFN basis.
Kenya is a relatively small U.S. trading partner (96th largest
The U.S. average effective applied tariff (total imports
divided by duties) on Kenyan imports was 0.1% in 2019.
in 2019), but the United States is a major trading partner
(5th largest) and second-largest export market for Kenya
https://crsreports.congress.gov
U.S.-Kenya FTA Negotiations
Kenya’s Tariffs. According to the WTO, Kenya’s average
Moving Beyond AGOA
applied MFN tariff rate for all partners was 13.5% in 2018.
Another challenge is how to successfully transition from the
Several top U.S. exports, such as machinery and aircraft,
current non-reciprocal bilateral trade relationship governed
however, face low or zero tariffs. Kenya’s agriculture sector
by AGOA and GSP. Establishing new apparel trade rules
presents the highest barriers to U.S. exports, with an
may be particularly complicated. As a lesser-developed
average tariff of 20.3%, and relatively high tariffs on dairy
beneficiary country (LDBC) under AGOA, Kenya qualifies
(51.7%), animal products (23.1%), and cereals (22.2%).
for AGOA’s third-country fabric rule, which allows Kenya
to export apparel made with imported fabrics to the United
Other Barriers. USTR’s national trade barriers report
States duty-free. In 2019, 97% of all U.S. apparel imports
notes concerns over Kenya’s broad ban on genetically
under AGOA were assembled in LDBCs from third-country
engineered food and feed products. It also highlights
fabrics. By contrast, U.S. FTAs typically use a more
Kenya’s 2019 Data Protection Act as potentially creating
stringent “yarn forward” rule of origin, requiring local or
uncertainties for cross-border data flows. Kenya is not a
U.S. sourcing of yarn and fabrics to qualify for duty-free
member of the WTO Government Procurement Agreement,
treatment. Negotiators must also set rules for allowable
and grants exclusive preference to Kenyan companies for
levels of sourcing from other AGOA countries.
procurements under roughly $500,000.
Relation to African Regional Trade Initiatives
Motivations for Trade Talks
Kenya’s membership in the EAC and the African
For the United States, an FTA could fulfill the shared goal
Continental Free Trade Area (AfCFTA)—and U.S. goals to
of Congress (as stipulated in AGOA) and the
support these regional initiatives—will also likely factor in
Administration to expand ties with trading partners in
the trade talks. Kenya's external trade policy is affected by
Africa and transitioning them to a more reciprocal
its EAC commitments, and EAC interests may influence
framework. An FTA could also help foster economic
Kenya's negotiating positions. A U.S.-Kenya agreement
growth in both countries and encourage Kenya’s efforts to
could affect regional trade patterns (e.g., through rules of
continue to improve its business environment and domestic
origin requirements) and set precedents for regional trade
economic reforms. Kenya’s World Bank Doing Business
and investment rules. Similar issues apply regarding the
score has risen from 58 to 73 since 2016. U.S. officials may
AfCFTA, an Africa-wide trade agreement, set to take effect
also see the trade talks as a strategic tool to counter growing
in 2020. The AfCFTA’s MFN clause requires Kenya to
Chinese influence on the continent.
extend tariff concessions granted to the United States to
AfCFTA members on a reciprocal basis.
With AGOA set to expire in 2025, Kenya may see benefit
in securing permanent preferential access to its second-
Timeline and Next Steps
largest export market. The Kenyatta administration may
USTR intends to pursue talks with Kenya under TPA,
also see an FTA as supporting its economic agenda and
which sets parameters for the timeline and other conditions.
signaling commitment to liberal economic policies in order
TPA, currently set to expire on July 1, 2021, would allow
to attract FDI. Kenya likely also seeks to bolster its
for expedited congressional consideration of the FTA, if it
strategic relationship with the United States, potentially
makes progress toward achieving statutory negotiating
boosting its position vis-à-vis regional rivals.
objectives and the Administration satisfies TPA notification
and consultation requirements. Such requirements include
“…we look forward to negotiating and concluding a
issuing agreement-specific negotiating objectives at least 30
comprehensive, high-standard agreement with Kenya
days before negotiations commence. Stakeholder comments
that can serve as a model…across Africa.”
to inform these objectives were due to USTR by April 28.
USTR Lighthizer, February 6, 2020
Issues for Congress
Key Issues for Bilateral FTA Talks
A U.S.-Kenya FTA would address congressional statutory
The significant economic development disparities between
objectives and represent a milestone in U.S.-Africa trade
the two countries suggest possible differences in
and economic relations. As negotiations unfold, Congress
negotiating priorities. A key challenge will likely be to
may seek to consider and advise the Administration on the
establish a framework for the talks that can achieve the
scope and extent of the agreement’s potential commitments;
ambitious level of commitments Congress directs the
how to prioritize FTA talks among other U.S. policy
Administration to seek in FTAs. At the same time, such a
objectives in Africa, including responses to the COVID-19
framework must remain politically and economically viable
pandemic; how to ensure the agreement and its rules of
in Kenya amidst domestic pressure to maintain protections
origin support regional integration efforts; and the types of
for import-sensitive or nascent industries. Potentially
support (e.g., capacity building funds) and potential
contentious topics include the timing and extent of tariff
flexibilities (e.g., phasing of commitments) appropriate to
liberalization including on agricultural goods; rules on
Kenya’s level of development.
intellectual property rights, investment, and data flows; and
See Also: CRS In Focus IF10168, Kenya, by Lauren Ploch
the level of labor and environmental protections. The
Blanchard; and CRS In Focus IF10149, African Growth
Trump Administration describes the talks as an opportunity
to develop a “model” FTA
and Opportunity Act (AGOA), by Brock R. Williams.
, but has not specified what
changes from past practice this may entail. U.S. FTA talks
Brock R. Williams, Specialist in International Trade and
with the South African Customs Union, which were
Finance
suspended in 2006 in part due to divergent views over
Lauren Ploch Blanchard, Specialist in African Affairs
scope, highlight the importance of establishing clear
parameters for the negotiations at the outset.
IF11526
https://crsreports.congress.gov
U.S.-Kenya FTA Negotiations
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https://crsreports.congress.gov | IF11526 · VERSION 1 · NEW