Al-Ahram: A Diwan of contemporary life (572)

Courting our cotton

When Egypt started importing more textiles, especially cotton, from Japan than Britain, its traditional source, the race was on between who could better woo the Egyptian market. Professor Yunan Labib Rizk examines the London-Tokyo-Cairo connection

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Hanna Lutfi

On 14 February 1935, the Egyptian government was invited to send a delegation to London to discuss the promotion of commercial relations between the two countries. Cairo accepted, justifying its decision to do so as follows: "As Britain in 1931 sent an economic delegation, headed by Sir Arthur Balfour, to Egypt to discuss these relations and to investigate the best means to promote British products in Egyptian markets, it is the duty of the Egyptian government to respond in kind by sending a delegation to Britain to discuss the state of commercial exchanges between the two countries and to examine ways of increasing the influx of Egyptian products into British markets."

At first glance, there was nothing untoward in this piece of news. However, it was not long before it became apparent that the British invitation was not as innocent as it appeared. Indeed, it was the opening salvo in a battle between London and Tokyo that would intensify as the year progressed and in which not only was Cairo involved but also Egypt was one of the main theatres of war.

Signs of an impending confrontation first appeared in the early 1930s when it was found that the value of Japanese textile imports to Egypt topped their British counterparts. London would have remained unruffled had these imports been restricted to silk, which is not manufactured in Britain. But it was another matter entirely when Japanese-made cotton products were edging out the produce of Britain's widely reputed Lancaster factories.

In his invaluable study, "The Japanese-British Competition in the Egyptian Cotton Textile Market: 1914-1939" which appeared in the Egyptian Historical Periodical (1988), Ahmed El-Sherbini El-Sayed puts in figures precisely what the British had to worry about. In 1913, British cotton textile imports accounted for 82 per cent of the Egyptian market; imports from Japan: none. As of the mid-1920s, however, Japanese textiles made a modest entry into the market, at four per cent of the market in 1924 and climbing to 17.4 per cent five years later. The British share, meanwhile, progressed in the opposite trajectory, dropping to 77 per cent in 1924 and then plummeting to 46 per cent by the end of the decade.

One observes that the gap created with the decline in British textile imports was far from filled with to Japanese counterparts. This was because during this period the Bank of Egypt had founded the Egyptian Company for Cotton Ginning and the Egyptian Company for Cotton Spinning and Weaving, and it was their products that had begun to make inroads into the national market.

If the British may have anticipated this, they were unprepared for the surprises the 1930s would bring them. While Egyptian imports of British cotton textiles dropped from 42 per cent in 1931 to just over 27 per cent two years later and then to a record low of 18 per cent in 1935, Egypt's imports from Japan had skyrocketed during the same period, climbing from 30.5 per cent in the first year to 64 per cent in the latter. This was a trend London simply would not put up with.

In its editorial of 7 March 1935, Al-Ahram attempted to explain the phenomenon, which it found all the more surprising in view of the fact that Japan had an estimated eight million looms as opposed to Britain's more than 52 million. What most impressed the newspaper was Japan's intensive campaign -- "in which the government and people have joined forces" -- to promote its textile industry. "All Japanese factories have been reorganised in accordance with the latest designs for mass production and equipped with the most up-to-date equipment and machinery. In addition, since 1925, the government has sought to eliminate the competition between manufacturers of the same product and export merchants. Towards this end it passed legislation for the creation of federations for export manufactures and federations for export merchants."

At the same time, according to the editorial, Japan restructured its international trade organisations, "establishing specialised departments for purchasing and others for sales," and it "dispatched exploratory missions to assess market opportunities abroad." Moreover, the government was not alone in this endeavour; "banks, maritime transport companies and other companies were also involved." Then, "whenever it attempted to win a new market, it drew on all the capacities it had to promote trade. In particular, it sent out study missions to assess the ways in which production could be tailored to the needs of the various markets and also to assess how Japan could benefit from the technical expertise in the countries they visited."

Britain, on the other hand, ignored the needs of the Egyptian market and was now paying the price. "Its commercial establishments in Egypt are closing their doors one after the other, to the extent that in Cairo only one is left. If Britain complains about the lack of popularity of its merchandise in Egypt it should not blame Egyptians who in reality prefer British products for their high quality and durability. Rather they should look to themselves, for the reason Egyptians are not buying these products is because their manufacturers have not taken the trouble to display them in Egyptian markets."

Nevertheless, the writer was not without his suspicions of the motives behind that invitation for an Egyptian trade delegation to visit Britain. "It may be that all the gain is theirs and all the loss is ours, especially as this will have no bearing on their wish to buy Egyptian cotton, for the current drop in cotton prices is incentive enough for this purpose these days."

The programme the British government had drawn up for the visit of the Egyptian trade delegation seemed to confirm the apprehension that its sole purpose was to promote British textile exports to Egypt. Topping the agenda was a visit to the famous Bolton spinning and weaving factories, which operated primarily on Egyptian cotton, and a meeting with the chairman of the joint committee for cotton manufacturing associations in Manchester. "It is likely that other important visits will be added to the programme before the Egyptian delegation arrives," Al-Ahram added.

In another editorial on 30 March, Al-Ahram relayed the fears shared by advocates of promoting Egypt's domestic textile industries, as well as merchants dealing with Japan, the US and other European countries over the actual purpose of the visit. "It is widely believed that this mission has a hidden purpose intended to serve or coincide with British intentions. This conflicts with the desire to stimulate our nascent national industry and with the interest of all Egyptians in obtaining those necessities that they must purchase from abroad at the cheapest possible prices to take advantage of the current competition in the marketplace."

The apprehensions were even aired during the banquet hosted for the delegation by the Egyptian Chamber of Commerce on 28 March. One participant expressed his hope that the visit would not lead to any preferential trade agreement that would give one country's exports an undue advantage over another's. Free and unregulated trade was the wisest policy for Egypt to follow, he said. Another reiterated the rumours he had heard to the effect that the British hoped to use their authority in Egypt in order to reduce customs to favour their merchandise at the expense of Japanese merchandise. A third member, the prominent merchant Hanna Lutfi, staged a brief demonstration. He displayed two pieces of the same type of fabric. One cost 5.75 pence a yard and the other 3.75 pence a yard. The second, he said, was Japanese and, moreover, it was sturdier.

Hafez Afifi, who would be heading the delegation, attempted to allay the fears of the members of the Chamber of Commerce. The purpose of his visit was to strengthen commercial relations between Egypt and Britain, he said, "and the only part of this mission that we deem worthy of our attention is to promote Egyptian products and manufactures that are not in the British markets at the present time." To further reassure them and the Egyptian public at large, it was decided that the delegation would also include Bank of Egypt founder Mohamed Talaat Harb as representative of Egyptian industry and Farghali Effendi, the largest exporter of Egyptian cotton.

With its aims thus set in mind, the Egyptian trade delegation departed from Alexandria on 30 March aboard the "SS Asteria" bound for Britain. Yet, even before it arrived in foggy London, darker clouds loomed in the horizon. A London The Times editorial, which Al-Ahram relayed to its readers, remarked on a deterioration in Egyptian-British trade relations that had to be rectified. "Britain has long been Egypt's best trading partner", it wrote. "In 1934, it supplied 22 per cent of Egyptian imports and took 31 per cent of its exports... Japan has made a dangerous encroachment into the British market. In particular, it has flooded it with cotton merchandise which constitutes the largest share of British trade. As Lancaster cotton spinners have begun to discover new markets, such as Brazil and Peru, in order to obtain their needs of short-staple cotton, all efforts will be made to determine whether it will still be possible for Egypt and Britain to conclude the appropriate arrangements to restore the British textile market in Egypt to its former level." The threat was not even thinly disguised.

In a similar vein, The Manchester Guardian remarked: "There are many commercial matters in which Cairo and Lancaster have common interests. The Egyptian commission should draw up a balance sheet on the profits and losses sustained by the cotton factories in England, especially now that Egyptian purchases from Lancaster have virtually come to a halt in recent weeks." At the same time, the newspaper was quick to point out the shaky confidence in cotton prices in view of the stockpiles in the New York cotton exchange. Again, the hint at turning to alternative cotton producers would not have been lost on the Egyptian delegation.

More important than the foregoing insinuations was a lengthy article in The Observer which did not beat around the bush in revealing the intentions of the British government. It was in the interests of both countries to expand their commercial relations, it wrote. "The large quantities of Egyptian cotton consumed by the Lancaster factories have aided the growth of Egypt's wealth, while Egypt's purchases of British manufactures have enhanced its value in Britain's export trade... No one has yet attempted to explain to the British and Egyptian people the benefits both of them reap from the close relations between them."

After this uplifting opening, the article proceeds to warn of the grave consequences to Egyptians if they refrain from purchasing British cotton textiles. "India and other British colonies, as well as other countries such as Brazil and Peru, are currently working overtime to develop cotton strains capable of competing in quality with those produced by Egypt. At the same time they are offering benefits and advantages that Lancaster finds attractive... Clearly, if this important market for British textiles suffers a tangible reduction in value, Lancaster products made of Egyptian cotton will undergo a commensurate reduction."

To top this threat, the newspaper puts in a touch of emotional-political blackmail. Britain was ever on hand to protect Egypt against any foreign invasion. "The people in Egypt are increasingly reassured, given the situation in the world today, that the protection offered by Great Britain makes them safer and more secure." Then to further wring the emotional chords it adds that there is a large and long-established Egyptian commercial community in Manchester and that those among it who were involved in the exports from that city to Egypt had lost huge sums of money "as a result of their countrymen's spurning of Lancaster's products in favour of Japanese goods". It is difficult to determine whether there is any truth to this curious fact. The chances are that the Observer writer was referring to the Greek, Italian and Jewish agents in England representing the major commercial establishments in Cairo and Alexandria.

Al-Ahram 's response to these articles was to solicit the opinion of an authority. Under the headline, "The economic question between Egypt and Britain", Ahmed Mohamed Ibrahim, professor of political economy at the Higher School of Trade remarks that the "balance of trade issue" that Britain was harping on was "merely a manoeuvre to impose on Egypt a particular economic policy behind which one catches the whiff of imperial prerogative". Ibrahim continues: "The aim of this policy is to unify the empire economically so as to ensure that British merchandise enjoys special privileges in colonial markets in return for which Britain will grant preferential treatment to the produce of its colonies."

The Egyptian trade commission stayed in Britain for a month and a half, touring various locations and negotiating with British officials. Then, on 16 May 1935, Al-Ahram announced that there would be an exchange of letters between Hafez Afifi and the British secretary of trade and that this understanding would be published in Cairo and London simultaneously. Al-Ahram could not help but wonder at the delay while other representatives of the Egyptian press openly voiced their suspicions. Al-Jihad asked what had compelled Prime Minister Tawfiq Nasim to adopt a policy of secrecy even on matters of trade and the economy. Al-Balagh echoed this thought in its headline: "The report of the Egyptian trade mission: why the secrecy?" In all events, all had to remain patient until mid-July.

In his summary of the trade negotiations, Ahmed El-Sherbini El-Sayed relates that the British proposed that Egypt, in order to redress the balance of bilateral trade, grant a range of British textiles preferential customs treatment or raise the customs on the competing imports from other countries. When the Egyptian negotiators rejected the proposal, the British suggested that Egypt should adopt a quota system that would favour British imports. The Egyptians rejected this as well and countered with a proposal of their own. This was to impose a surplus fee on Japanese textiles which, in effect, was to compensate for the drop in the exchange rate. Following this, the Egyptians would enter into negotiations with the Japanese in the hope of concluding a mutual trade agreement that would guarantee Japan a certain level of products in the Egyptian market.

On 19 July, page 9 of Al-Ahram featured two important articles side by side. The first announced, "Report of the economic mission and memorandum from Minister of Finance to cabinet", and the second, "Egyptian invalidates its trade agreement with Japanese following the letters of understanding read in Cairo, Alexandria and London." Under the second we learn that the Japanese consul had been called to the Ministry of Foreign Affairs and handed the Egyptian cabinet's decision. The secret war had just burst into the open.

The Egyptian government justified revoking the trade agreement on several grounds. Above all, "some countries" had departed from the gold standard and the consequent devaluation of their currencies gave their products a greater advantage over others, "to the extent that the ordinary customs on those products are not sufficient to protect domestically produced products from the stiff competition." It added, "Japanese textiles were the best example of this phenomenon." Another factor that gave Japanese textiles an unfair competitive advantage, according to the Egyptian government, was that Japanese factories could avail themselves of cheap Indian cotton whereas Egyptian factories had no choice but to use Egyptian cotton because they were prohibited from importing foreign cottons.

The chairman of the Japanese-Egyptian trade organisation was quick to affirm his country's continued interest in increasing its imports of Egyptian produce. In fact, he pointed out, Japanese imports from Egypt were LE8 million higher than its exports to Egypt. "This is why I was so sorry to hear reports of your intention to raise customs taxes on Japanese cotton goods following the return of your mission from Britain," Al-Ahram quoted him as saying.

In the same edition, Al-Ahram explained that the Egyptian-Japanese agreement in question had been signed on 1 April 1930 with the understanding that it would be renewed annually. In addition, it provided that the two sides had the right to terminate the agreement by giving notice to that effect three months before the expiry date. "But the Egyptian government has given Japan an eight-month notice on its decision to break off the agreement, having felt compelled to do so in light of the results of the economic talks with between Egypt and Britain." Now, two alternatives were open to Egypt and Japan. They could either renew the agreement between them but on new terms, or they could not reach an agreement, in which case duties on Japanese imports would climb and Japan would respond in kind.

The decision had an immediate impact on the textile markets in the country with people scrambling to buy Japanese products before the prices went up and merchants holding on to their stockpiles until they did. The result was that prices spiraled rapidly -- some fabrics by more than 10 piastres per garment. Other consequences of the decision, according to Al-Ahram, was the marked drop in Japanese imports, the increased production of domestic factories and a rise in British imports. All of these factors combined to raise the price of cotton fabrics, a subject about which Al-Ahram had no further comment.

The Japanese, too, remained mysteriously silent; nothing was mentioned in Tokyo about the abrogation of the treaty. Who did make an outcry, however, were the importers of Japanese goods in Alexandria, who held an urgent meeting in the Egyptian Chamber of Commerce building in Alexandria. Al-Ahram relates: "After discussing their current situation, the participants resolved to ask the Egyptian government to keep customs tariffs at their current levels until the shipments that they had recently ordered from Japan arrived in Egypt. If a new system is to go in effect, they added, then it should apply to goods ordered after 18 July, the day in which the cabinet took its decision to revoke the Egyptian-Japanese trade agreement."

It was two weeks before Tokyo issued its first response. In a telegram to the Egyptian government, the chairman of the Japanese Economic Federation in Tokyo pointed out that for about eight years the balance of trade between Egypt and Japan had not been in favour of the former but that Japanese firms had always responded to requests to increase their purchases of Egyptian cotton. The result was that the balance of trade had turned around and that over the previous six months Japanese imports in Egypt exceeded Egyptian imports from Japan. The Japanese official added that his fellow industrialists and businessmen had urged their government to renew the agreement with Egypt.

Cairo's response was to take another step in the opposite direction. Apparently, Ministry of Finance officials had observed a mad rush to import Japanese merchandise. "If left to their own devices, importers will flood the markets with these goods and undermine the importance of the agreement we had hoped to conclude with Japan." In all events, on 20 September, a month before the treaty expired, the Egyptian government increased duties on Japanese imports by 40 per cent.

The Japanese were galvanised into action. They protested the sudden and premature tax hike as a departure from the most favoured nation status between them, and they dispatched a delegation to Cairo to begin negotiations. The Egyptian-Japanese Trade Association, meanwhile, issued a statement declaring that Tokyo was still intent upon promoting trade with Egypt and that it had no intent to obstruct the development of Egyptian industry.

Egyptian-Japanese trade negotiations that began in the autumn of 1935 dragged on much longer than expected. Throughout this period, the Japanese remained convinced that the British government was behind Egypt's decision not to renew its trade agreement with Tokyo. In fact, Tokyo had aired its suspicions to this effect in a letter to the British Foreign Office dated 25 July 1935. Their suspicions were not misplaced.