U.S.-Kenya Trade Negotiations

U.S.-Kenya Trade Negotiations

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Updated May 22, 2024
U.S.-Kenya Trade Negotiations
The United States and Kenya began free trade agreement
Kenya is a relatively small trading partner for the United
(FTA) negotiations in 2020 under then-President Donald
States (94th largest in 2023), but the United States is a major
Trump and then-President Uhuru Kenyatta of Kenya. The
trading partner for Kenya (4th largest) and the fifth-largest
Joseph R. Biden Administration did not continue the FTA
single export market, accounting for 6% of Kenya’s
talks; it instead launched the U.S.-Kenya Strategic Trade
exports. In contrast, Kenya’s largest overall trading partner,
and Investment Partnership (STIP) in July 2022. STIP aims
China, accounted for 18% of Kenya’s reported imports
to establish “high-standard commitments” between the
($3.2 billion of $19 billion) and 3% of Kenya’s exports in
United States and Kenya on various nontariff trade issues—
2023 ($207 million of Kenya’s reported $7.1 billion total).
including on agriculture, anti-corruption efforts, digital
In 2023, the United States had a goods trade deficit with
trade, environmental issues, workers’ rights, and trade
Kenya; U.S. exports totaled $443 million and imports $895
facilitation. STIP does not address tariff barriers, as would a
million. Top U.S. exports were petroleum products ($100
comprehensive FTA.
million), chemicals ($68 million), and aerospace and related
parts ($40 million). Imports consisted mostly of apparel
The Biden Administration has not indicated whether or not
($472 million), pharmaceuticals ($200 million), and fruits
it will seek congressional approval for STIP. Congress
and tree nuts ($92 million). U.S. imports from Kenya have
nevertheless may assess the talks with regard to (1)
Congress’s
grown by 10% annually, on average, since 2001, when
constitutional authority to regulate foreign
AGOA’s tariff benefits took effect (Figure 1).
commerce; (2) continuing congressional oversight of the
negotiations; (3) the agreement’s potential effects on the
Figure 1. U.S. Goods Imports from Kenya
U.S. economy, and trade and foreign policy implications;
and (4) statutory mandates in the African Growth and
Opportunity Act (AGOA, P.L. 106-200, as amended)
directing the President to seek FTAs in Africa.
Kenya is not a major U.S. trade partner in global terms, but
it is one of Africa’s most dynamic economies and the
second-largest beneficiary of AGOA by value of eligible
U.S. imports, excluding crude oil. Increased trade is a key
bilateral priority. The U.S. government also views Kenya as
a strategic partner in the region more broadly; Kenya is a
major beneficiary of U.S. security and foreign assistance,
acts as a hub for U.S. security initiatives in the region, and
hosts the largest U.S. embassy in sub-Saharan Africa
(SSA). President Biden is to host Kenyan President William

Ruto for a State Visit on May 23.
Source: CRS; data from U.S. International Trade Commission.
U.S.-Kenya Economic Ties
Tariff Rates and Other Trade Restrictions
In the decade prior to the COVID-19 pandemic, Kenya
As the United States and Kenya are both members of the
achieved an average annual GDP growth rate above 5%. At
World Trade Organization (WTO), trade between them is
the same time, it remains a lower middle-income country,
governed by their WTO commitments, including reciprocal
with GDP per capita under $2,300, and more than 80% of
most-favored nation (MFN) tariff rates, which also apply to
employment in the informal sector. According to
all other WTO members. The United States also provides
International Monetary Fund estimates, the economy grew
unilateral duty-free treatment to most Kenyan exports
by 5.5% in 2023 and is projected to expand by 5% in 2024.
through the Generalized System of Preferences (GSP) and
Despite a return to pre-pandemic levels of growth, potential
AGOA. Both programs require congressional
long-term effects of pandemic-related setbacks in childhood
reauthorization every few years. GSP lapsed at the end of
education and its impact on human capital development
2020, and AGOA is set to expire at the end of September
remain a major concern. As of 2022, roughly 38% of
2025. AGOA countries maintain access to both programs,
Kenya’s population of 57 million was age 14 or younger,
even though GSP authorization expired.
suggesting a coming surge in the labor force that presents
Kenya is a member of the East African Community (EAC)
both challenges and opportunities.
customs union and shares a common external tariff
Kenya’s economic relationship with the United States
schedule with the other EAC members, though it applies its
centers on trade in goods. (Official data on trade in services
own tariff rates on some products. Other EAC members are
is not available.) Nearly all bilateral investment activity is
Burundi, the Democratic Republic of the Congo (DRC),
U.S. foreign direct investment in Kenya, valued at $277
Rwanda, South Sudan, Tanzania, and Uganda. The United
million in 2022. Foreign affiliates of U.S. multinational
States signed a Trade and Investment Framework
firms employed 4,300 people in Kenya in 2021 (latest data
Agreement with the EAC in 2008.
available), with total sales of $2.3 billion.
https://crsreports.congress.gov

U.S.-Kenya Trade Negotiations
U.S. Tariffs. In 2023, around 56% of U.S. imports from
Moving Beyond Nontariff Barriers
Kenya entered duty-free under AGOA. Remaining imports
While the STIP is not slated to address tariff barriers, some
were largely duty-free under GSP or on an MFN basis. The
U.S. and Kenyan businesses support the inclusion of tariffs.
U.S. average effective applied tariff (total duties divided by
For example, the U.S. agriculture industry asserts that
imports) on Kenyan imports was 0.3% in 2023.
Kenyan tariffs on agricultural products will continue to
Kenya’s Tariffs
hinder U.S. market access even if NTB concerns are
. Kenya’s average applied MFN tariff rate
addressed. Meanwhile, Kenyan exporters have expressed
for all partners was 14.3% in 2022 (latest WTO data
interest in gaining permanent market access to the United
available). Several top U.S. exports, such as machinery and
States under a comprehensive FTA, rather than preferential
aircraft face low or zero tariffs. Kenya’s agriculture sector
benefits provided under AGOA and GSP. Some analysts
presents the highest barriers to U.S. exports, with an
note that Kenya’s benefits of entering into an FTA with the
average tariff of 24.5%, and relatively high tariffs on dairy
United States may not be greater than those it currently
(53.1%), animal products (30%), and cereals (28.1%).
enjoys under AGOA, especially for textile and apparel
Other Barriers. The U.S. government identified certain
products. Kenya qualifies for AGOA’s third-country fabric
nontariff barriers (NTBs) as ongoing concerns for U.S.
rule, which allows Kenya the flexibility to export apparel
businesses, including Kenya’s complex import
made with imported fabrics to the United States duty-free.
requirements for agricultural products and inefficient
In 2023, nearly all U.S. apparel imports from Kenya under
customs procedures. Opaque rules under Kenya’s 2019
AGOA were assembled from third-country fabrics. By
Data Protection Act also potentially create uncertainties for
contrast, U.S. FTAs typically require local or U.S. sourcing
cross-border data flows. Additionally, Kenya is not a
of yarns and fabrics to qualify for duty-free treatment.
member of the WTO Government Procurement Agreement,
Relation to African Regional Trade Initiatives
and its government grants exclusive preference to Kenyan
Kenya’s membership in the EAC and the African
companies for procurements under roughly $340,000.
Continental Free Trade Area (AfCFTA), and U.S. efforts to
Motivations for Trade Talks
support these regional initiatives, are also likely to factor in
For the United States, a final STIP agreement could
trade talks. Kenya’s EAC commitments affect its external
enhance U.S.-Kenya trade relations by addressing NTBs,
trade policy and negotiating positions. A U.S.-Kenya
and it could become a model for future U.S. efforts to
agreement could affect regional trade patterns and set
expand ties with trading partners in Africa. Reducing NTBs
precedents for regional trade and investment rules. Similar
could lower costs for U.S. businesses and help U.S. firms
issues apply regarding the AfCFTA, an Africa-wide trade
maintain their competitiveness in the Kenyan market,
agreement that took effect in January 2021.
especially given Kenya’s new trade agreements with the
Timeline and Next Steps
United Kingdom (UK, effective since 2021) and the
The United States and Kenya held the fifth round of
European Union (EU, ratified by both parties as of April
negotiations from May 13-17, 2024 and committed to
2024), both of which lower tariffs. A U.S.-Kenya trade
finalizing an agreement by the end of the year. The U.S.
agreement could help foster economic growth in both
Trade Representative (USTR) stated both sides have made
countries and encourage Kenya’s efforts to continue to
“significant progress” in several areas, including on anti-
improve its business environment and domestic economic
corruption and agriculture, and negotiations in other areas,
reforms. U.S. officials may also see the trade talks as a
such as trade facilitation and workers’ rights, are ongoing.
strategic tool to counter growing Chinese influence on the
President Biden and President Ruto are expected to discuss
continent.
trade and investment issues during the State Visit set for
Reportedly, the Kenyan government sees the STIP as a
May 23.
complement to AGOA and a stepping stone for a potential
Issues for Congress
comprehensive FTA in the future. Kenyan officials may
The STIP negotiations are the only known prospectively
also seek to bolster Kenya’s strategic relationship with the
United States, potentially boosting its position vis-à-vis
binding trade negotiations the United States is pursuing in
Africa, though some Members of Congress have raised
regional rivals.
concerns with the enforceability of such an agreement
Key Issues for STIP Talks
without a strong dispute settlement mechanism. As it has
The significant economic development disparities between
with some of the Biden Administration’s other trade
the United States and Kenya may affect their respective
initiatives, Congress may seek to engage in the process,
priorities. The U.S. government may seek to negotiate
given its historical role of authorizing and implementing
commitments close to those in comprehensive FTAs it has
trade agreements through legislation. USTR briefed
with relatively more developed countries. This could
congressional staff during the latest round of negotiations.
present challenges for the Kenyan government, which faces
Congress may continue to urge the Administration to
domestic pressure to maintain protections for import-
consult, collaborate, and maintain transparency with
sensitive and nascent industries. Potentially contentious
Congress on STIP negotiating goals and process. Congress
topics include rules on agriculture, investment, and data
may also consider how STIP could support regional
flows, as well as labor and environmental protections. STIP
integration efforts and U.S. economic interests; and the
talks may need to maintain clear negotiating parameters
potential types of support (e.g., trade capacity building
throughout the process to set expectations for the United
funds) and flexibilities (e.g., phasing in of commitments) to
States and Kenya. In 2006, U.S. FTA talks with the South
potentially include given Kenya’s level of development.
African Customs Union—the only other U.S. FTA
Also see CRS In Focus IF10168, Kenya and CRS In Focus
negotiations attempted to date in SSA—were suspended,
due in part to divergent views over scope.
IF10149, African Growth and Opportunity Act (AGOA).
Liana Wong, Analyst in International Trade and Finance
https://crsreports.congress.gov

U.S.-Kenya Trade Negotiations

IF11526
Lauren Ploch Blanchard, Specialist in African Affairs

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https://crsreports.congress.gov | IF11526 · VERSION 11 · UPDATED