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Country Commercial Guides for FY 2000: Kenya Report prepared by U.S. Embassy Nairobi, released July 1999

CHAPTER VI:   TRADE REGULATIONS AND STANDARDS

A.   OVERVIEW

Kenyan business has, for a long time, been overregulated. Donor-initiated economic reforms, however, have dramatically reduced government's interference with trade. Price decontrol, removal of foreign exchange and imports controls, as well as limited deregulation of the grain sector, have become the hallmark of GOK's trade liberalization initiative. This liberalization initiative has strongly enhanced the Kenyan business environment. To enhance the initiative, the Government of Kenya has embarked on import duties rationalization, consistently lowering tariffs, and reduction of licensing requirements. Although customs rules are still detailed and rigidly implemented, affecting smooth operations of such practices as manufacturing under bond, the GOK's gradual rationalization of import duties do make domestic businesses more competitive. The GOK has also embarked on a program of streamlining Customs operations, making it more user-friendly and more consistent with a liberalized economy while maximizing revenue collection. Further, the GOK has reorganized and strengthened Kenya Ports Authority, a GOK parastatal tasked with supervision of Kenyan ports operations, and Kenya Revenue Authority to maximize revenue collection while providing services consistent with international business expectations. These developments are quite a divergent approach from the previous practices which were considered to be strict constructionist approaches, which led to serious delays in clearing both the import of inputs and the export of finished goods and encouraged illegal payments at the customs offices.

Some negative factors, however, still exist. These include issues such as limited access for foreign investors to domestic credit markets and exclusion from some government tenders. Also, Kenyan importers must use local insurance companies to insure imports while the insurance companies are currently required to reinsure part of their business with Kenya Re-Insurance Corporation, a GOK parastatal reinsurance company. However, with the newly introduced insurance privatization legislation, this requirement is soon to be removed.

All commodities imported into Kenya must undergo preshipment inspection, including price comparison, by Government of Kenya-appointed inspection firms.

B.   TRADE BARRIERS/TARIFFS AND IMPORT TAXES

Kenya applies tariffs based on the international harmonized system (HS) of product classification. GOK's FY '97 budget proposals reduced the number of tariff rates from six to five and the maximum tariff rate from 40 percent to 35 percent. This rationalization of import duties also includes a reduction of import tariffs on certain capital equipment from 25 percent to 15 percent; duty on specified raw materials used mainly in the plastics and the spinning & weaving sectors was also reduced from 15 percent to 5 percent. Other capital goods and primary raw materials had duty reduced from 10 percent to 5 percent.

The government maintains lower duties and value-added tax for selected items in certain priority sectors. Those items include: palm oil and tallow, bicycles, steel billets, wire rods, graphite lead, windmills, power transformers, cables, and active ingredients used for preparation of human and veterinary pharmaceuticals, fungicides and pesticides.

Non tariff barriers include the requirement to use a GOK appointed inspection firm for imports. Some U.S. firms may find packaging and labeling requirements difficult to meet. The lack of certain intellectual property rights (IPR) protection on videos, for example, makes U.S. firms reluctant to export their goods and services to Kenya. Insurance of imported items being restricted to companies licensed in Kenya also may result in constraints.

Kenya's eight tax treaties normally follow the Organization for Economic Cooperation and Development model for the prevention of double taxation of income. At the moment there is no tax treaty between Kenya and the United States.

C.   CUSTOMS VALUATION

All imports with F.O.B. value of more than $5,000 must undergo a pre-shipment inspection for quality, quantity, and price. They must be issued with a Clean Report of Findings by one of the three Government of Kenya appointed inspection agencies: Cotecna Inspections SA, Bureau Veritas-Bivac or Societe Generale de Surveillance (SGS). (See Appendix A, Section 3 for contact information.) Random inspections of shipments will also be undertaken even for shipments with an F.O.B. value below $5,000. Customs valuation is based upon the price determined by the government appointed inspection firm. U.S. firms should ensure that the lowest possible price evaluation is used for customs valuation purposes by the pre-shipment inspection firm.

D.   IMPORT LICENSES

Import licensing controls were dismantled in 1993. However, for a small number of imports involving health, environment and security concerns, import licenses are required. Imports are, nevertheless, still subject to some paperwork and approvals. Imports of machinery and equipment classified as equity capital or loan purchases must receive prior exchange approval; banks are not to issue shipping guarantees for clearance of imports in absence of the approval. All imports procured by Kenyan based importers must be insured with companies licensed to conduct business in Kenya. Importation of animals, plants, and seeds are subject to quarantine regulations. Certain pets require an import license. Cats and dogs are issued with an import license only after a veterinary surgeon has certified the animal to have been vaccinated against rabies and has no symptoms of any contagious disease. The Kenyan Embassy in Washington, DC (address: 2249 R Street, N.W. Washington, DC 20008; Tel: 202-387-6101) and other Kenyan embassies may issue the import license. Importation is allowed only at designated entry points.

E.   EXPORT CONTROLS

Kenyan export regulations are generally liberal and contain few export restrictions. The country allows export of all items except for the following which are considered either of aesthetic value to the country or have national security importance: military equipment and munitions; antiques and works of art; bullion and coins; archives; live animals other than livestock and pets; wood charcoal and lumber; ivory, rhino horn and other products related to endangered species; human bones; and specially built transport equipment and automotive vehicles (e.g. armored cars and tanks). Export of these items must receive prior authorization by the relevant Kenyan Government ministry before an export license is issued.

F.   IMPORT/EXPORT DOCUMENTATION

All Kenyan imports are required to have the following documents: import declaration forms (IDF) and a clean report of findings from the pre-shipment inspection firm, and valid pro forma invoices from the exporting firm. Firms exporting from Kenya need to obtain Form C 29 from Customs Department; and the following documents, which serve as certificates of origin, from Kenya's Ministry of Commerce and Industry: G.S.P. Form A for U.S. destined goods, EURO 1 for exports to the European Union, PTA Certificate of Origin for exports to the PTA (COMESA) area, and Ordinary Certificate of Origin for exports to all other parts of the world.

G.   TEMPORARY ENTRY

Kenya allows duty-free entry into the country of goods destined for neighboring countries or for transshipment; however, bonds must be executed. Such goods must be held in bonded warehouses designated by Kenyan Customs Department. Release of the bonded goods into the Kenyan market is prohibited, unless statutory customs payments are made. Samples and exhibits/displays for trade fairs may be imported into the country duty free. It is a Customs Department requirement, however, that the items are re-exported or are certified destroyed by a customs certification officer after use. An importing firm that fails to meet these requirements will be surcharged import duty and value added tax on the presumed value of the items.

H.   LABELING/MARKING REQUIREMENTS

Special labeling is required for condensed milk, paints, varnishes, vegetables, and butter ghee. In addition, imports of prepackaged paints and allied products must be sold by metric weight or metric fluid measure. Some U.S. firms may have to adjust to these metric requirements. Manufacturers are required to indicate on the labels of all consumables both the date of manufacture and expiry date. Weights and measure indicators must be in metric form or both metric and imperial forms. Labeling for pharmaceutical products should include: therapeutically active substances, inactive ingredients, name and percentage of any bactericidal or bacteriostatic agent, expiry date, batch number, any warnings or precautions, name and business address of manufacturer, and registration number of the product.

I.   PROHIBITED IMPORTS

It is illegal to import the following items unless exemption has been granted by the relevant Kenyan Ministry: plants, soil, endangered species, arms and munitions, and non-pharmaceutical drugs. As the list of prohibited imports is continuously changing, importing firms should always check with the Kenyan Customs Department, Ministry of Finance, P.O. Box 30007, Nairobi, Kenya, Fax: 254-2-718-417, Tel: 254-2-715-540.

J.   STANDARDS

The Kenya Bureau of Standards (KBS) is a government regulatory body under Kenya's Ministry of Trade which is mandated to ensure conformance to International Standards Organization (ISO) product standards. KBS conducts product testing for individual product category and undertakes certification. To indicate conformance with mandatory product requirements, a KBS mark is placed on the certified product. It is a legal requirement that all locally manufactured consumer products bear the KBS mark before they are presented for sale. Kenya Bureau of Standards has legal authority to stop sale of uncertified products, and to prosecute the offending parties. KBS conducts random checks on imported products to ensure they conform to ISO standards; those products that do not meet the standards are withdrawn from the market and the importer is prosecuted. To obtain the KBS standards, U.S. exporters should contact: Managing Director, Kenya Bureau of Standards, P.O. Box 54974, Nairobi, Kenya, Tel: 254-2-502-211, Fax: 254-2-503-293.

The Kenya Bureau of Standards is currently in the process of reviewing all standards; great emphasis is on those that are ten or more years old. The reviewing process is quite slow and a great number of the standards are still to be reviewed.

Importation of plant materials, seeds and food grains need certification from the Kenya Plant Health Inspectorate Service (KPHIS). Seed certification is mandatory before it can be sold locally. The process can take up to three years. Kenya is not yet a member of UPOV, but plans to join. Kenya Plant Health Inspectorate Service contacts are: Managing Director, Kenya Plant Health Inspectorate Service, P.O. Box 14733, Nairobi, Kenya; Tel: 254-2-440-087; Fax: 254-2-448-940.

The Pest Control Products Board (PCPB) registers all agricultural chemicals imported or distributed in Kenya following local testing by an appointed research agency. It also inspects and licenses all premises involved in the production, distribution, and sale of the chemicals. The board has the right to test chemicals sold locally to assure their compliance with originally certified specifications. No agricultural chemicals can be imported into Kenya without prior PCPB authorization and chemicals can only be sold for the specific use permitted by the board. Unfortunately violations do occur, endangering the environment. For the most part, however, major horticulture producers and exporters apply strict European Union and U.S. standards in the application and use of agricultural chemicals.

All organizations involved in the manufacture, distribution, and sale of agricultural chemicals in Kenya are members of the Pesticide Chemical Association of Kenya (PCAK). Members have to sign a "Code of Conduct" based on the U.N.'s Food and Agriculture Organization Code. This document requires rigid controls in manufacture, packaging, labeling, and distribution. It also mandates an ethics code. For specific requirements, both PCAK and PCBP can be contacted at: Pest Control Products Board, P.O. Box 14733, Nairobi, Kenya, Tel: 254-2-444-029; Fax: 254-2-446-115.

K.   FREE TRADE ZONES/WAREHOUSE

Kenya has 14 export processing zones; six are in operation. The six are inclusive of both GOK and privately owned zones. Samara Industrial Park is Kenya's largest privately owned space-leasing export processing zone. Located in Nairobi's industrial area, it has been operational since 1990. Three others have been set up and are operated by Kenyan firms for their specific needs, while four privately owned zones are being constructed. The Government of Kenya has developed a 230-acre zone out of 721 acres allocated for export processing at Athi River, a Nairobi suburb; GOK is also developing another large export processing zone in Mombasa, Kenya's main seaport. The export processing zones are available to both developers (i.e. those intending to put up structures for lease) and operators.

Incentives provided to manufacturers in the Export Processing Zones include: a ten-year corporate tax holiday and 25 percent tax rate thereafter; a ten year withholding tax holiday on dividend remittance; duty and VAT exemption on all inputs except motor vehicles; stamp duty exemption on legal instruments; exemption from Industrial Registration act, Factories Act, Statistics Act, and Trade Licensing Act; exemption from pre-shipment inspection; on site customs inspection; and work permits for senior expatriate staff.

Export Processing Zone Authority (EPZA) is a Kenya Government parastatal tasked to facilitate participation in manufacturing in the EPZ. Details on joining the EPZ can be obtained from: Chief Executive, Export Processing Zone Authority, British-American Center, P.O. Box 50563, Nairobi, Kenya, Tel: 254-2-712-800; Fax: 254-2-713-704. The Commercial Service in Nairobi will be glad to assist in obtaining specific EPZ details for interested U.S. firms.

The Manufacturing Under Bond (MUB) scheme has been operational in Kenya since 1986. The MUB scheme is accorded most of the incentives of EPZ's without the requirement of location at predetermined sites. The only requirement for the manufacturer is to reimburse GOK all costs of the customs officer and guards at site. During the GOK's FY 96 budget speech, the Minister for Finance liberalized manufacturing-under-bond rules to allow tax deductions for purchase of used equipment on leased sites. The Investment Promotion Center (IPC), another GOK parastatal tasked to encourage and promote investment in Kenya, processes all applications for MUB. IPC contacts are: Executive Chairman, Investment Promotion Center, NBK Building - 8th Floor, P.O. Box 55704, Nairobi, Kenya; Tel: 254-2-221-401; Fax: 254-2-336-663.

Nairobi and Mombasa, Kenya's main trading cities, have sufficiently large warehousing facilities. Most of the warehouses are for private warehousing; however, some specialized ones provide bonded warehousing services. Dutiable goods entering Kenya may be stored in the bonded warehouses without payment of duty and value added tax; but duty and tax become due and payable when the goods are released from the bonded warehouse for local commercial use. Prevailing tariff rates then apply.

L.   SPECIAL IMPORT PROVISIONS

Kenyan customs regulations have no special provisions for importation of goods. All goods must be duty rated; however, Kenyan customs legislation allows the Minister of Finance to waive part or all rated duty. Legislation disallows waivers on commercial imports. In practice, waivers are sometimes granted to politically connected individuals.

M.   MEMBERSHIP IN FREE TRADE ARRANGEMENTS

Kenya is a member of the 21-country Common Market for Eastern and Southern Africa (COMESA). COMESA is a developing free trade area in which, eventually, all internal tariffs and trade barriers will be removed and a common external tariff will be introduced.

In November 1999, the leaders of Kenya, Uganda, and Tanzania strengthened the three-year-old East African Cooperation (EAC) when it signed the EAC treaty. The treaty provides for the formation of an economic community and removal of trade barriers by November 2003. The EAC intends to enhance and promote economic, trade, and development programs within the East African region through integration of infrastructure; harmonization of inter-territorial trade and tariffs; and in the long-term, currency alignment.

Kenya is also a signatory to major international trade agreements such as the United Nations Conference on Trade and Development, World Trade Organization, and the Lome Convention.