Sounding the alarm
Egyptian textile exports face great risks as protectionism nears its end in 2005, a seminar this week warned. Niveen Wahish listened in
It has been eight years since the Agreement on Textiles and Clothing (ATC) was signed along with the General Agreement on Tariffs and Trade. ATC was designed to phase out the protectionism that the textiles and clothing industry enjoyed in importing nations in the form of quantitative restrictions, better known as quotas, on imports from developing countries. According to the agreement, starting 1 January 2005, the quota system will no longer be in place.
While regulating entry into the US or the EU, the quota system was a safe haven for Egyptian exporters, as it made space for their presence by limiting the presence of others. With quotas lifted, Egyptian exporters will be competing head to head with Chinese, Indian and Pakistani exporters.
But Egyptian exporters are wary of the challenge. A seminar organised by the Egyptian Centre for Economic Studies (ECES) this week examined the fears of exporters. A study entitled "The future of Egypt's Textiles and Clothing Exports in Light of New Trade Rules," was presented during the seminar by Samiha Fawzy, deputy executive director of ECES. Fawzy warned that multiple challenges lie ahead of this sector and a lot needs to be done in the coming 18 months so that Egyptian exporters reinforce their position in these markets before they are fully open.
According to the study, 51 per cent of Egypt's textile and clothing exports goes to the EU and 42 per cent to the US. Another paper presented during the seminar by Mohamed Qassem, chairman of Al-Alamia Company for Trade, showed that the EU and the US accounted for 52 per cent of textile imports and 71 per cent of clothing imports in 2000. Competition for these two markets will be fierce once the quotas are lifted. Qassem said that China is expected to be one of the biggest benefactors of the lifting of quotas. He cited World Bank figures showing that China's share of global clothing trade will rise from the current 20 per cent to 50 per cent.
While China's share will grow, that of Egypt might drop, particularly since Egyptian exports are already faltering. Fawzy said Egyptian textile exports to the EU have fallen from 2.2 per cent in 1995 to 0.5 per cent in 2001, while clothing exports were a meagre 0.3 per cent in 2001. Textile exports to the US fell from 0.9 per cent in 1995 to 0.8 per cent in 2000, while clothing exports remained constant at 0.6 per cent.
To enable Egyptian exporters to expand their share in these two markets, both Fawzy and Qassem said preferential treatment is needed in the short run. Fawzy said that once the association agreement with the EU is ratified by all EU members, Egyptian textile and clothing exports can enter into the EU quota tariff free. She said that the exports of countries with similar association agreements have grown as a result of such agreements.
As for the US, she said that the free trade area negotiations that Egyptian businessmen have been pushing for will take time. "Egypt only has a year and a half to strengthen its foothold in the US market," she said. The alternative, she suggested, would be a preferential agreement for textiles and clothing between Egypt and the US. She also pointed to the availability of the Qualifying Industrial Zones (QIZ) programme.
The latter solution was also suggested by Qassem who pointed out that QIZs have helped Jordan boost its exports from nil to over $400 million.
But preferential treatment is only part of the solution. Not only must the sector be revisited, particularly public sector companies, which still represent the bulk of the sector, but the issues that hamper exports must be addressed by the government. She said that although the floating of the pound has been a good move, it could have given a greater boost to exports had it been accompanied by other measures. The customs tariff, she pointed out, needs to be cut down. The average weighted customs tariff in Egypt is over 25 per cent, compared to 15 per cent in other countries.
Fawzy said that the high customs tariffs on production inputs kept exporters from benefiting from the depreciation of the pound. Other deterrents to investments in this sector, Fawzy said, include unpredictable policies, high interest rates, the lack of hard currency and the reluctance of banks to extend credit.
Not everything is in the hands of the government. Fawzy said exporters must also heed international requirements regarding quality and environmental and labour standards.
