Kenya wants East African Community to consider further reduction in duty paid on rice imports from Pakistan to safeguard its tea exports. Nairobi wants to maintain current status quo, which ends in December, for another five years.
Kenya Tea Board managing director Sicily Kariuki spoke of consultations to revise December deadline, which allowed it to continue levying 35 percent duty on rice imports from Pakistan, the country's largest tea market.
Within EAC Customs Union tariff band, Pakistan imports are subject to 75 percent duty, putting Kenya's tea under similar retaliation tax, which would make trade between two countries impossible.
Giving Pakistan special concession is critical now as world tea markets are saturated and Islamabad could easily opt to source it from other producers. But it is willing to trade with Kenya, which is its largest rice importer under existing terms.
"The talks between Kenya and its East African partners are fundamental as we would like to come up with position that will be within EAC Protocol but not jeopardise exports to Pakistan."
"Pakistan still remains one of our single largest export market for tea taking average of 98 million kilograms annually, which represents 28 percent of Kenya's total exports," said Kariuki. It is sensitive as it touches on "issues raised by East African partners. We wish to carry on talks without having to go against EAC agreement."
Pakistan government lowered import duty on tea from 35 to 10 percent, giving Kenya a price advantage. "Positive outcome of talks will determine our maintenance if not growth of Pakistan's market share, which will mean long-term sustainability of industry and foreign exchange earnings," she said.
At present, no positive conclusion is in sight. Agriculture Minister Kipruto Kirwa said Kenya has no choice but to come to agreement with EAC partners, or look elsewhere for the tea exports. A survey of some emerging markets such as Nigeria & Russia is underway to target these and preferably cut down Pakistan's market share.
Under Common External Tariff agreement, EAC states agreed on blanket increase of rice imports from 35 to 75 percent to build capacity on rice production in the region and enable member states have comparative advantage.
Pakistan indicated to slap ban on Kenya tea or impose discriminatory anti- dumping duty, reversing gains made by special concession of 10 percent duty levied on Kenya tea imports.
Kenya's situation is compounded with Pakistan negotiating trade accords with other major tea producer states. "These pose major threat to Kenyan market share as teas from south Asian states coming to Pakistan duty free will have price advantage. If countries, some of which are our major competitors, gain access to Pakistan market, then effect on our tea exports and industry at large will be devastating," warned Kariuki.
Pakistan is weary of trade imbalance with Kenya. Rice imports by Kenya, on steady increase in last five years, dropped significantly last year while tea exports maintained steady increase in the same period.
Kenya imported 151920 tonnes Pakistani rice in 2003 valued $28.4 million, 3159251 tonnes in 2004 valued $32.4 million and 120314 tonnes in 2005 valued $24.3 million.
Kenyan tea exports to Pakistan grew steadily since 2002 from 97 million kgs to 134 million kgs in 2005. Kenya's tea export share to Pakistan market rose over the same period from 65 to 73 percent. "The imbalance has been in favour of Kenya, which raised concern with Pakistan," said Kariuki.
The situation did not help by growing tea smuggling and counterfeiting of garden marks that increasingly becoming threat to genuine trade as smuggled tea is cheap and threatens Kenya's tea quality.
In case talks fail, and there is no accord between Kenya and Pakistan, Kenya stands to lose 20 years of trying to increase exports. Pakistan made two proposals: Preferential Trade Agreement between Kenya and Pakistan in 2003 viewed as cementing trade ties, possibly increasing trade and later PTA. A decision is awaited as consultations with EAC continue.
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