Fiscal incentives in Kenya’s free zones: To what extent are they consistent with the WTO rules on subsidies?

Abstract

In Kenya, free zones take the form of Special Economic Zones (SEZs) and Export Processing Zones (EPZs) and are offered a myriad of fiscal and non-fiscal  incentives. At the same time, Kenya, as a member of the World Trade Organization (WTO), is a signatory to the Agreement on Subsidies and  Countervailing Measures (ASCM), which prohibits subsidies that are contingent on export performance or use of domestic over imported products.  Although free zones are not mentioned specifically, fiscal incentives constitute subsidies since they are financial contributions, incomes or price supports  given by the government or their agencies which confer benefits. In this regard, the article examines whether the fiscal incentives offered in Kenya’s free  zones meet the specificity test and are therefore consistent with the provisions on prohibited and actionable subsidies under the ASCM. The conclusion is that though the fiscal incentives offered in Kenya’s free zones constitute financial contributions, they meet the specificity test and are consistent with  ASCM rules on subsidies contingent on export performance and use of domestic over imported products, given that Kenya is allowed to grant export  subsidies and none of the subsidies offered under the EPZs Act and SEZs Act require the use of domestic over imported products.