Digital trade in the Kenya-US FTA?

Digital trade in the Kenya-US FTA?

During a visit to The White House in February, Kenya’s President Kenyatta agreed to begin negotiations on a free trade agreement with the US. This has been described in US commentary as an example for African nations to “deepen…economic and commercial ties”, moving beyond the African Growth and Opportunity Act (AGOA).

Will the FTA include digital trade? The signs suggest it will! The USTR’s announcement of negotiations highlights the digital economy as an “area of cooperation”; Kenya has included a section on digital trade in their negotiating objectives.

So, this could be the first FTA involving an African country to include a substantial digital trade section. This post will highlight some of the potential challenges that Kenya is likely to face in putting together such an agreement.

Uneven negotiating

One of the key challenges of such an agreement is that it pits a team of expert US negotiators against a much smaller set of Kenyan ones, with less resources at their disposal.

Already there has been questions asked regarding the negotiating teams in Kenya. Kenyan tech expert Ali Hussein, shared a list of some of the private sector delegates chosen to be involved on the Kenyan side. He highlighted concerns that personnel involved include a number of staff from US companies like Coca-Cola and Bechtel with potential conflicts of interest.

Looking at the list, this criticism seems to be particularly relevant to the digital area – three digital experts appear, two from IBM and one from Google!

Given the newness of applying digital trade rules in the African context, it will be crucial that such rules are carefully negotiated. Ensuring inclusion of Kenyan expertise in areas such as mobile, fintech, ICT for development and innovation hubs, for example, would be important to provide insights that feed into negotiations.

Negotiating objectives

Kenya has released a detailed set of negotiating objectives. On digital trade it describes four objectives (paraphrased below):

  • “gradual regulations” around digital trade and cross-border flows “in line with the countries development agenda”
  • Strengthening e-commerce
  • frameworks to strengthen innovation and entrepreneurship ecosystems
  • “strengthening…infant incubation, acceleration and innovation hubs”

These are a reasonable set of goals (if a little unclear in terms of how they would translate into specific rules). It also aligns with some of Kenya’s strengths in digital innovation and emerging e-commerce.

But there are questions if these will be achievable. The US in recent trade agreements has been demanding stricter and more binding digital trade rules. What they see as ‘standard’ rules includes free-flows of data, agreements preventing data localisation and undertakings on custom duties. This departs greatly from the stated Kenyan objectives of “gradual regulation” and “infant incubation”.

If the US look to impose strong binding rules in Kenya, then this will potentially restrain certain domestic objectives in the digital economy. Specifically, regulation of fintech and apps, online media distribution and taxes, and localisation rules for mobile money are areas that will need close consideration. This is particularly the case as Kenya is defined by a strong presence of international tech firms, where digital trade rules could be more relevant.

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