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2. Introduction to trade and investment regime
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2.1 Legislation on trade and investment

2.1.1 Legislation on trade administration

Major trade-related laws in Kenya include the East African Customs Management Act, the Customs and Excise Act, the Finance Act, the Imports, Exports and Essential Supplies Act, the Banking Act Cap 488, the Insurance Act, the Value Added Tax Act, the Export Processing Zones Act, the Standards Act, the Public Health Act, the Food, Drugs and Chemical Substances Act, the Pharmacy and Poisons Act, the Mining Act, the Trading in Unwrought Precious Metals Act, the Plant Protection Act, the Suppression of Noxious Weeds Act, the Agricultural Produce (Export) Act, the Agricultural Act, the Dangerous Drugs Act, and the Fisheries Act.

Laws regulating government procurement include the Local Government Act, the Government Contracts Act and the Public Procurement And Disposal Bill. The Customs and Excise Act provides the legal basis for Kenya to take antidumping and take anti-dumping and countervailing measures against imports. However, so far there is no specific legislation covering safeguard measures. Other trade-related laws and regulations in Kenya include the Industrial Property Act, the Copyright Act, the Trade Marks Act, the Seeds and Plant Varieties Act, and the Standards Act.

2.1.2 Legislation on investment administration

The major investment-related laws in Kenya consist of the Foreign Investment Protection Act, the Trade Licensing Act, and the Investment Promotion Act. These laws provide for the rights and obligations of foreign investors, detailed investment procedure, application for investment approval, competent departments, investment incentives, etc. Sector-specific rules are incorporated in relevant regulations, such as the Transport Licensing Act, the Land Control Act, the Water Act, the Hotels and Restaurants Act, the Tourism Industry Licensing Act, the Mining Act, etc.

2.2 Trade administration

2.2.1 Tariff system

Kenya is one of the few countries where a single tariff structure is applied. The main form of tariff is ad valorem tariff. In 2004, East African Community was founded between Uganda, Tanzania, and Kenya in the form of a Customs Union, which imposes a Common External Tariff (CET) on goods from countries outside the Community, and levies no or very low tariff within the Community. As of January 1st, 2005, goods imported from outside the Community are subject to a three band tariff, in which 0 percent is on raw materials and capital goods, 10 percent on semi-processed and intermediate goods, and 25 percent on finished goods. The Community also imposes a tariff rate of 35 percent or 55 percent on certain wheat, sugar, tobacco, cement, etc. Apart from import duties, the Kenya government also imposes value-added tax on imports, and excise on imported products like wine, bottled water, soft drinks and tobacco, etc.

2.2.2 Import administration

According to the Trade Licensing Act, a trade license is required by Kenyan Ministry of Trade and Industry to do import business in Kenya. Non-Kenyan citizens are not allowed to do import business.

Out of concern for security, health and environment, Kenya has established an import licensing system, which classifies goods into two categories. The first category is prohibited imports, which include eleven products, such as false money and counterfeit currency notes and coins, pornographic materials, narcotic drugs, chemicals, etc. The second category covers restricted imports, which can only be imported when approved by the departments concerned, or meeting the relevant standards issued by plant quarantine, health or environmental authorities. Among these goods are products of animal and plant origin, weapons, automobiles, and precious medals, etc. However, there are exceptions to the regulation of cases where an import license is not required for goods to be sold in duty- free shops or export processing zones, or ammunitions purchased by the Government.

The East Africa Customs Management Act provides for a drawback of import duty on materials and goods imported for the manufacture of goods to be exported, transferred to a free port or transferred to an export processing zone. The importer will need to obtain authorization from the Commissioner of Customs before applying for a drawback. The Commissioner determines the duty drawback coefficient applicable based on the claim for drawback which should be presented within a period of 12 months from the date of exportation of the goods.

Additionally, the Plant Protection Act of Kenya stipulates that imported plants, the Customs shall deny entry of seeds and fruits (excluding canned fruit) without a phytosanitary certificate issued by the Kenya Plant Health Inspectorate Services (KPHIS).

2.2.3 Export administration

As in the case of import business, the Trade Licensing Act stipulates that a trade license is required by Kenyan Ministry of Trade and Industry to do export business in Kenya. Export licenses

Out of concern for public and food security, conservation of wildlife and natural resources and preservation of nationa l heritage, the Kenyan Government imposes export licensing control over a small number of products including cast iron scrap, wood-charcoal and timber, antiquities and works of arts, and products related to endangered species, etc. Export tariffs and export incentives

The Customs and Excise Act stipulates that export duties are charged upon raw hides and skins, and scrap metal. The Ministry of Finance is responsible for changing the rates of export duties.

According to its Economic Recovery Strategy for Wealth and Employment Creation 2003-2007, the Government of Kenya has adopted various incentives to encourage export, such as reducing or remitting excise and providing for export drawback etc.

Besides, a Tax Remission for Export Office (TREO) Scheme has been implemented. According to the TREO Scheme, a local manufacturer can apply for a remission of import duty and VAT on raw materials used in the manufacture of goods for export.

2.3 Investment administration

2.3.1 Market access

Pursuant to the Investment Promotion Act, foreign investors who intend to invest in Kenya shall apply to the Kenya Investment Authority for an investment certificate, which is only granted if the amount to be invested by a foreign investor is at least US$500,000 or the equivalent in any currency, and the project to be invested in shall be legal and beneficial for Kenya.

As a matter of fact, a foreign investor can invest in any economic sector in Kenya free of any product limit. The formal limits on foreign ownership only exist in telecommunications and insurance, in which foreign ownership of a business is limited by policy to 70 percent and 77 percent respectively. Companies listed on the Nairobi Stock Exchange are required to have at least 25 percent of national ownership.

2.3.2 Foreign exchange and foreign investment protection

A floating exchange rate system is adopted in Kenya and there are no exchange controls. A foreign investor is free to repatriate his capital and after-tax profit. The Foreign Investment Protection Act specifies that the Kenyan government ensures the safety of foreign investment and will only expropriate the foreign investment for national use under special conditions with full compensation to the investor. Meanwhile, both China and Kenya are members of the Multi- lateral Investment Guarantee Agency (MIGA), which covers Chinese investors in Kenya against risks involving government acts, war and civil disturbance and transfer restriction.

2.4 Competent authorities

The Kenya Ministry of Trade and Industry is the major competent authority for the administration of international trade and investment. Its main functions include: researching and developing Kenyan industries, making and implementing trade and industrial development policies, promoting export and attracting foreign investment, handling trade- and investment-related issues such as intellectual property rights (IPR), standards on goods, and issuing trade licenses, etc. The Ministry consists of the following departments: the Department of External Trade (DET), the Export Promotion Council, Export Processing Zones Authority, Kenya Bureau of Standards, and the Regional Divisions of DET.

The Department of External Trade is responsible for the supervision of foreign trade policies, the promotion of bilateral and regional trade relations, the promotion of foreign trade and the introduction of foreign investment, etc. The Export Promotion Council is mainly responsible for facilitating the business of exporters or export products manufacturers, promoting the export of goods and services, and coordinating all the export-related activities. Export Processing Zones Authority mainly provides convenience and services for enterprises in the zones, and issues the permit to establish an enterprise in the export processing zones as well as the permit to establish an export processing zone. Main functions of the Kenya Bureau of Standards include scientifically formulating the national technical standards and disseminating information relating to standards and technology regulations. The Regional Divisions of DET are responsible for issuing trade licenses required for import and export. The primary function of the Customs Service Department is to collect tariffs, excise, and VAT on imports. Additionally, the Department is also responsible for collecting trade statistics and preventing illegal entry and exit of prohibited goods such as drugs and weapons.

The Kenya Ministry of Finance is mainly responsible for auditing the applications of drawback on customs taxes and VAT under the Tax Remission for Exports Office (TREO) Scheme.

The basic functions of the Kenya Investment Authority include providing one-stop service information and assistance to investors, issuing investment certificates or required licenses for investors, and promoting foreign investment in Kenya The functions of the National Investment Council include formulating investment-promoting guidelines for the government, investigating into the possible factors influencing Kenya's economic development and foreign investment, and promoting the communication between government and enterprises in terms of implementing national investment policies.

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