FTA -- wishful thinking?
Egyptian businessmen are making another attempt at convincing the US administration to initiate free trade area negotiations with Egypt. Niveen Wahish reports
It's happening again. Talk of a free trade agreement (FTA) with the US is in the air. The much-hoped-for FTA with the US has been a contentious issue for around three years now. Whenever a US official is in Egypt or an Egyptian delegation is in the US, hopes are high that negotiations could be launched at any time. But the US has always kept the issue at arms length. US officials have often cited that a number of reforms need to be in place before FTA negotiations could be launched and have pointed out that the Trade and Investment Framework Agreement (TIFA) which the US signed with Egypt in 1999, is the stepping stone towards those negotiations.
However, hopes have been renewed once more as a mission from the American Chamber of Commerce in Cairo (AmCham) currently tours the US.
This is not one of AmCham's regular annual Doorknock missions. The Doorknock had been scheduled for last March but "that was a very critical time in the region," said Hisham Fahmy, executive director of AmCham. "Then the hostilities ended and it was prudent that there should be some Egyptian presence in Washington."
Three issues are on the AmCham mission agenda. The first of these is the strategic position of Egypt since the hostilities ended. The mission will stress the importance of involving Egypt in the reconstruction of post-war Iraq once an administration is in place. "The US will need countries in the neighbourhood, it will need people who speak Arabic, [and who are] of the same culture and same fabric as the Iraqis," Fahmy added.
The mission will also follow-up on the Palestinian-Israeli issue and will stress the importance of moving ahead with the implementation of the Roadmap peace plan. As businessmen, the delegation will stress the importance of regional stability for the prosperity of the people. "If we do not have stability, business will be disrupted, investors will shy away from the region and tourism will be affected," Fahmy said. He added that, "We think the US has a big role in causing stability in the region."
Fahmy would not comment on President Bush's proposals for a regional free trade area. "We don't have details on what it really means and how it affects us," he said.
Another important issue on the AmCham agenda is the pursuit of an FTA. Fahmy pointed out that there is now a letter circulating in Congress that AmCham is supporting, and is having its friends in Congress sign. The letter, according to Fahmy, tells President Bush that the signatories favour an FTA with Egypt and hope to expedite it. Fahmy is optimistic, particularly following recent statements by US Trade Representative Robert Zoellick, that Egypt and Bahrain are strong candidates for an FTA with the US.
The issue of the FTA has been highly contentious. At one point the US pretext for not entering into negotiations over an FTA with Egypt was the expiry of the Fast Track authority -- which delegates the administration to carry out trade talks. That was reactivated under the Bush administration and renamed the Trade Promotion Authority. Yet, nothing came of it in the end. A visit by US trade representative, Robert Zoellick, to Egypt last summer implied that an FTA has yet to be earned. During the visit he stressed the importance of the TIFA agreement as a pre-FTA negotiation phase.
According to a press release issued at the time, TIFA opens a permanent dialogue on the basic issues of trade, including agricultural and industrial standards; intellectual property rights; customs procedures; regulation of service industries; investment; market access; trade-related aspects of labour and environmental policy; and private sector dialogue.
The agreement also established a Council on Trade and Investment, composed of representatives of both governments. This council was scheduled to meet regularly to discuss trade and investment matters, providing a mechanism for the prompt addressing of any issues that may arise between the US and Egypt.
However, the council, according to one US official who preferred to remain anonymous, was basically dormant until it held its first meeting during Zoellick's visit last year. "The TIFA council is the vehicle through which we understand each other's systems better to develop freer trade," said the official.
He added that, "depending on how those negotiations proceed, we make a decision with regard to opening negotiations on an FTA." He pointed out that Jordan, which signed an FTA with the US in December 2001, and Morocco which is currently in negotiations over an FTA, both actively engaged in a TIFA process for a couple of years before embarking on FTA negotiations.
The issues discussed within the TIFA Council are ones which US officials have said Egypt must work on reforming. These include everything from bureaucracy to customs and investor protection. "When the US negotiates an FTA with a country, it has to have all the confidence that it will be able to have fair market access."
But Egypt has come a long way on many of the issues which the US has often cited as needing reform. For example, an intellectual property rights law which conforms with WTO requirements has been passed and Egypt has joined the WTO Information Technology Agreement (ITA) which eliminates tariffs on computers, computer equipment, computer software products, telecommunications and related products.
Egypt is also working on overhauling its customs system, which has been of major concern to many foreign investors. A money laundering law has been passed, a banking law is being discussed in parliament and a draft competition law is ready but awaiting submission to parliament.
The advance Egypt has made on these issues is making businessmen confident that the US will soon approve the start of negotiations over an FTA. In fact, Fahmy is hopeful that "if things move in the same direction they are moving in now, there might be some kind of announcement for the launch of negotiations soon."
Egyptian businessmen are keen on an FTA with the US because of the potential market it opens to them. An FTA would mean that Egyptian exports into the US market would enjoy unlimited access for their products with no tariffs.
"An FTA opens up a huge market for Egyptian businessmen in the US," said Fahmy. The one sector that will immediately feel the impact of the FTA is the textile industry. Currently the entry of textiles and apparel is limited by quotas which are subject to the levy of around 17-20 per cent in customs and taxes.
Although Egypt's exports have not been fulfilling their quotas, at least their place on the US market was reserved by the quota system.
"In 2005, the quota system will be dismantled in the US and that is not to our advantage," Fahmy said, explaining that Egyptian exports will be competing head to head with China and Pakistan. By entering the US market at zero tariffs, "we have leeway on our competitors."
Egypt exports around $1 billion to the US, around a quarter of which is textiles. Other Egyptian non-traditional exports include foodstuffs, leather and footwear, building material and furniture.
The size of Egypt's non-traditional exports are expected to grow eight fold with an FTA. However, according to Nagui El-Fayoumi, executive director of the Egyptian Exporters' Association (Expolink), this will not happen simply by lifting barriers. Parallel with an FTA, El-Fayoumi said that exporters must work on improving the quality of their products, maximising their current capacity, modernising their industries and training their employees. Equally importantly, local obstacles to exports must be overcome.
While Egypt will have the possibility to boost its exports to the US, the US will be able to do the same. Egypt's imports from the US, which stand at around $3.4 billion, could grow. "We can not take everything and not give anything back," pointed out Said El- Qassim, head of the Egyptian Commercial Service (ECS). However, he pointed out that most of Egypt's imports from the US are capital goods, much needed in local industry. "Within the framework of an FTA, customs on those capital goods will drop, which accordingly will cut production costs," he said.
Hisham Fahmy of AmCham is not too pessimistic either. He believes that if Egypt negotiates a deal whereby it opens its market at a slower rate than the US, that problem could be overcome.
In the lack of an FTA Egyptian businessmen have the possibility to use Qualifying Industrial Zones (QIZ) to help them. The QIZ is a US Congress initiative launched in 1996 to support the peace process in the Middle East. These zones are industrial parks that can be set up in Jordan, Israel or Egypt, from which goods can be exported duty-free to the United States.
At least 35 per cent of the value of the product must be added within these zones. And at least eight per cent of that 35 per cent must be added in Israel. In a Jordanian QIZ, for example, that 35 per cent would mean that a minimum of 11.7 per cent must be added in a Jordanian QIZ, eight per cent in Israel, and the remaining 15.3 per cent can come from either a Jordanian QIZ, Israel or the West Bank and Gaza.
According to US officials, QIZs have had a tremendous impact on Jordan's economy. He pointed out that Jordan's exports to the US in QIZ type products, which consist mainly of apparel, textiles, accessories and handbags, grew from $2 million in 1999, to over $300 million in 2002. The US official said that the US administration has pointed out that QIZs are available to Egyptian businessmen should they express an interest in pursuing them
However QIZs are "politically unacceptable" Said Said El-Qassim, head of the ECS. They are controversial due to the fact that Israeli components must be included in any of their products.
An FTA is what Egyptian businessmen have their eyes set on. And they realise that negotiations will not be easy. Egypt's Association Agreement with the EU took eight years from the start of negotiations until ratification. "It is going to take time and we should start," said Fahmy. "We hope it will not take that long."
The enthusiasm for the FTA with the US surpasses that for the EU Association Agreement. El-Qassim explains that this is because of the fact that Egyptian industrial goods already enjoy free access into the EU market. "Trade-wise, what the Association Agreement gave them is greater access for their agricultural products," he said.
On a similar note, Fahmy said "the pain is already over with the EU, so you might as well make the most of it." He was referring to the fact that Egyptian businessmen will be competing with EU products anyway, so why not compete in the US as well.
Al-Ahram Weekly Online : 22 - 28 May 2003 (Issue No. 639)
Located at: http://weekly.ahram.org.eg/2003/639/ec1.htm