The task ahead
Amid much reservation over its impact on local industry, the Egypt-EU Association Agreement was finally ratified last week. Gamal Essam El-Din and Niveen Wahish report
After a period of uncertainty over whether the Egypt-EU Association Agreement would be ratified by the Egyptian parliament in its current session or not, the agreement swept swiftly through parliament.
Ambassador Gamal Bayoumi, who has headed the Egyptian delegation at the negotiating table for over four years said he is, "very relieved" that the agreement has been ratified.
The ratification was also welcomed by Chris Patten, European Commissioner for External Relations and Ian Boag, head of the delegation of the European Commission in Egypt. "We are obviously extremely gratified by this important step in developing the relationship between Egypt and the EU." The European Union (EU) is Egypt's main trading partner, representing 40 per cent of its foreign trade.
The agreement commits both Egypt and the EU to the liberalisation of bilateral trade and the creation of a free trade area amongst them. Within the framework of the free trade agreement, Egyptian industrial goods gain immediate free access into EU markets, while EU products gain access into the Egyptian market gradually over a period extending to around 17 years. Although Egyptian agricultural exports will not enjoy free access into EU markets, they will be granted larger export quotas.
But the agreement, which replaces the 1977 cooperation agreement, is not limited to trade and economic cooperation. It also provides for the set up of new institutional structures promoting political and social dialogue. The agreement is one of a series of similar agreements between the EU and 12 Mediterranean partners initiated by the Barcelona Declaration in 1995. Similar agreements have been signed with the Palestinian Authority, Jordan, Morocco, Tunisia and Israel. Lebanon and Algeria have finished negotiating their agreements and are awaiting ratification, while an agreement with Syria remains under negotiation.
Negotiations between Egypt and the EU began in 1995 and were formally concluded in 1999. The agreement was signed two years later in June 2001. Since the signature, the EU parliament, as well as the national parliaments of Denmark, Sweden, Finland, Germany and Ireland, have ratified the agreement.
Although the Egyptian parliament has ratified it, the agreement does not go into force until it is passed by the national parliaments of the remaining 10 EU member states. Nonetheless, as Chris Patten put it, the agreement is, "now well on track to enter into force in 2004, when ratification by all member states of the EU should be completed."
During the eight years since the beginning of negotiations, the agreement, particularly aspects related to the liberalisation of trade, have been cause for controversy. Opponents to the agreement were concerned that opening Egypt's markets to European exports would kill local industries. This point was strongly raised while parliament was debating the agreement on 7 April of last year. Both leftist and liberal-oriented MPs warned that the implementation of this agreement could end up ruining Egypt's indigenous industry.
"I have a lot of reservations over this agreement. It is a big adventure and its implementation could end up destroying our local industries and turning Egypt into a market for European goods," Khaled Mohieddin, leader of the leftist Tagammu Party, said. Mounir Fakhri Abdel-Nour, spokesman for the liberal- oriented Wafd Party, focussed on the fact that the agreement does not offer Egypt significant advantages in the area of boosting its agricultural exports to Europe. "Most European countries still insist on offering their farmers huge subsidies amounting to 350 billion euros annually. This is a stumbling block and we must begin new negotiations to raise our quota of agricultural exports to Europe," said Abdel-Nour.
Mohieddin and Abdel-Nour deplored the goverment's failure in preparing Egyptian industry for the agreement's impact.
Heidar Boghdadi, spokesman for the Arab Nasserist Party, strongly attacked the agreement, claiming that it will not only kill a host of Egyptian industries, but will also lead to a widening of the budget deficit. "Giving free access to European products will strip the treasury of LE6 billion in annual customs duties," Boghdadi said.
In the face of this opposition, Prime Minister Atef Ebeid and industry and external trade ministers rallied to defend the agreement and urge deputies to approve it. Ebeid said the EU is a major political force in today's world. "Forging close relations with this force is in Egypt's interests. The EU is our premier trade partner and as much as 40 per cent of Egypt's trade is with this entity. The EU is also Egypt's largest export market, the biggest donor of economic assistance, and the most important source of investment. The value of our trade with the EU is six times higher than that with the Arab world," Ebeid said. Ebeid vehemently denied that the partnership agreement would turn Egypt into a market for EU products. "Egypt now boasts wonderful competitive capacities in agriculture, industry and infrastructure. It is because of these capacities that the EU is putting a lot of obstacles before our products," Ebeid said.
Foreign Trade Minister Youssef Boutros Ghali admitted that the EU is heavily subsiding its farm products. "Some EU countries such as England are in favour of cutting these subsidies while others, especially France, are opposing any cuts. As this is a complete injustice, we asked that the quotas of our farm exports to the EU be revised every three years to have greater access to markets in Europe," Ghali said.
Industry Minister Ali El-Saiedi said the partnership agreement with the EU must not be greeted with misgivings from local industrialists. "Our industries are moving in leaps and bounds, especially in such highly promising areas as steel, textiles, petrochemicals and electrical equipment," El-Saiedi said.
Alaa Ezz, chief adviser to the chairman of the Federation of Egyptian Industries also admits that certain industries which survived on protectionism will face problems as Egypt liberalises its market. These industries include engineering and electronics, as well as the automotive industry. These industries need revisiting, he said. He suggested that these industries could survive if they are encouraged to merge to form larger entities that are able to utilise economies of scale with the local content in these industries being increased by encouraging feeder industries.
However, "There needs to be a mass- drive for modernisation of all industries," Ezz said. He added that there must also be a focus on sectors where Egypt enjoys a competitive advantage and where it can depend on local raw materials and low- cost labour. These competitive industries include textiles, garments, leather and software.
"The real work begins now," as Bayoumi put it. He too stressed the need for Egyptian industries to modernise, whether by making use of the Industry Modernisation Programme, initiated and partly funded by the EU, or by other means.
He also recommended that, until the remaining EU member countries ratify the agreement, Egypt and the EU should sign an interim agreement. That, he explained, would enable exporters of agricultural goods to make use of the expanded quotas provided for in the agreement. In return Egypt would begin to lift customs on EU exports into Egypt. That would only affect customs on capital goods and raw materials, both of which would be beneficial for Egyptian manufacturers, as it serves to cut down their production costs, said Bayoumi. Within the framework of the agreement Egypt would lift tariffs on EU exports in stages, each lasting between three and four years. Lifting customs on semi- and fully manufactured goods and cars comes last.
"We understand that certain concerns exist," said Boag. "The role of Egypt and the EU is to ensure that these concerns do not become a reality and the agreement is part of the solution to problems and not a problem in itself."
