Case Study: The World Trading System
There are several trades, exports and related macroeconomic policies that have been put in place in Kenya since the 80s. Kenya has faced local issues that have barred its capability to benefit from market access to other countries.
The economic changes began with a 10% tariff surcharge that was placed on imports. These reforms rose with time from 2% to 90% based on 1400 items. Similarly, there were tariff drops on 20 item based on exports firms. Additionally, the tariff groups that existed were on a decline trend in the 90s from 25 to 11 while the rate went from 170% to 70% (Muga, 1999). These tariff changes used in 80s and at the start of 90s affected the decline in effective tariffs. The overall tariff rates rose in 1982 and dropped in the rest of the period.
Another issue that arose was on the direct export promotion policies. In the 1970s, it influence brought about by processed exports subsidy in 1974 was reduced since the rate was low (10% of f.o.b goods processed in Kenya) and payments experienced delays. In the 80s, a third of subsidy payments were based on four companies while payments made were attributed to 5% of the exports leading to small incentive figure (Muga, 1999). This resulted to companies perceiving the subsidy as a windfall and not an incentive for better exportation. There were efforts placed to tray and correct this situation though it was suspended. Much later the subsidy system was abolished in 1993 and in its place came the VAT for intermediate products.
In regards to the real exchange rate, it has been note as the most effective relative charge for any economy in terms of export. The goal of the economic changes in Kenya was to limit this rate’s misalignment; huge variation of the rate from the equilibrium real exchange. It was this period that the Kenya shilling was faced with several discretionary depreciations. The SDR was done away with as it was termed to as ineffective in sustaining competitiveness of the Kenyan currency. The currency could not show the country’s trade trend that was quite diversified. Come 1991, the local authorities employed a more market-based exchange rate model that was aimed at making the shilling convertible by liberalizing with better rates.
These institutional mechanisms adopted were in conflict with the WTO agreement that Kenya is a signatory. For Kenya to benefit from the most effective institutional practice, it has to employ a local legislation, for implementation of the agreement (Muga, 1999). The legislations were however deterrent to exporters. However, the WTO offered to help Kenya in its effort to create an effective environment for businesses. This was in terms of technical analysis in regards to dumping and subsidization.
Considering that WTO is a pervasive body in terms of trading, its policies will be influential in the economies of any country. There is hence need for Kenya to take part in negotiations with it to safeguard its trading with other countries. In 1997, financial services negotiations that involved Kenya and the WTO were quite successful. The country’s involvement in these negotiation comprised of assessing the offers at its disposal two year earlier and enlisting more areas into the schedule. Kenya was able to place barriers in maritime air and transport insurance whenever the situation called for it. Results show that market access were now better and bound, allowing the supply of non-discriminatory grounds.
References
Muga, K. (1999). Africa and The World Trading System: A Case Study of Kenya. Retrieved on 17th July 17, 2014 from http://www.unmillenniumproject.org/documents/kenya_trade.doc
