Effects of European Union Rules of Origin on Textile Firms in the Export Processing Zones of Nairobi, Kenya

Abstract

The current study evaluated the opinions of the section of business people operating under the EPZ zones , in rating how the European Union (EU) rules of origin contribute to ; reduced market access , diversionary investment, trade deflection , and limit extra sourcing of raw materials for the textile under the EPZ firms in Kenya. The study was guided by the following specific objectives: to analyze the problems that affect efficiency of operations of textile firms under the EPZ in Kenya; to examine effects of the EU Rules of Origin on the Textile firms under EPZ in Kenya; and to assess the extent to which the EU Rules of Origin affect access by Textile firms under EPZ to EU market. The study further evaluated the factors other than the EU Rules of Origin that affect the operations of the firms studied. The data used in this paper was derived from business people managing the textile firms under the EPZ in Athi River, Nairobi. The data was collected through the survey senior managers and or owners. Descriptive statistics were used to present data and qualitative analysis was conducted to give meaning to the results. While there was some evidence of trade diversions, reduced market access, and trade deflection   there was no evidence of severe effects of the EU rules on the textile firms under EPZ, whose cornerstone is the AGOA opportunity. However, conditions for origination of textile products under the EU rules such as the Domestic Content and the Sufficient Working conditions is  a major setback for Kenyan textile to access the EU market due the fact that the cost structure of textile production in the country that is labor intensive make it to be disqualified under those rules. Furthermore, it was found that the use of more labor to capital in Kenya also affect the competitiveness of the textile products in the international market. In terms  of the problems that affect efficient operations of the textile firms under the EPZ it is clear that operations are largely affected by other factors like taxation regime, the infrastructure , trade policies and cost structure which is affected by the cost of power. Implications for the establishment of task force by the government to evaluate the EU rules of origin especially on the textile firms under the EPZ zones .The government should also rethink before accepting the EU proposal of signing a Free Trade Agreement with Kenya. This is because the country will lose a lot in terms of industry base and employment as local firms collapse under the surging weight of EU competition. The current study challenges the existing EU rules on textile products from the African countries and more so Kenya and to some extent the government laxity in addressing the critical issues while negotiating trade terms with the European Union.

Keywords: European Union, Rules of Origin, Export Processing Zones