Efforts are under way to lay the groundwork for negotiation of a free-trade agreement with Russia. Egyptian Minister of Trade and Industry Mounir Fakhri Abdel-Nour says that Russia has asked Egypt to start negotiations for a free-trade agreement with the Eurasian Customs Union (ECU), which includes Russia, Kazakhstan and Belarus. The minister said a committee has been formed with experts from the ECU to coordinate with the Egyptian side. The first step in the negotiation process begins in about a week's time, during the scheduled visit of a Russian delegation led by Russia's Federal Service for Veterinary and Phytosanitary Surveillance. A free-trade agreement with Russia was on the table even before the 25 January Revolution, said one source who asked to remain anonymous, but negotiations were never completed due to the political changes of the past four years. What is different this time is that the agreement is with the ECU and not just Russia, giving Egypt access to a larger number of countries and with more members possibly joining in the future. “This also means that there are more details to iron out,” the source said. The agreement would allow custom-free export of Egyptian agricultural and industrial goods to the ECU, which would boost Egypt's trade. Trade between Egypt and Russia amounted to US$3 billion in 2013. Egypt exported around $450 million worth of goods, 80 per cent of which was fresh produce, the source said. It imports mainly oil, steel and wheat. According to the Russia Today website, Egypt buys 25 to 30 per cent of Russia's wheat exports, while Russian wheat accounts for about 40 per cent of the grain consumed in Egypt. A free-trade agreement with the ECU would have a neglible affect on Egypt's customs revenues, the source said, since Egypt's imports from Russia already carry low tariffs. It would also be able to increase exports needed by the Russian market such as pharmaceuticals, textiles and clothing. An agreement would cut down on red tape and procedures that can hamper Egyptian exports to the Russian market, the source said. Russia banned the importation of food and agricultural products from the EU and other western countries in retaliation for sanctions placed on it due to Russian involvement in the crisis in Ukraine. The ban has translated into an opportunity for Egyptian exporters. As the Arabic saying goes, “The misfortunes of some are the benefit of others.” While EU food exporters are feeling the pinch as a result of the ban, the Egyptian and Russian presidents recently agreed that Egypt will boost its agricultural exports to Russia to fill the void left by the EU and western goods. In return, Russia will provide Egypt with 5.5 million tons of wheat. Russia Today quoted the head of the Russian Federation's Ministry of Agriculture, Nikolay Fedorov, as saying that an increase of 30 per cent in the deliveries of citrus fruits, potatoes and onions from Egypt would cover half of any deficit caused by the ban of imports from the west. The Russian market is already used to Egyptian agricultural exports. Hisham Al-Naggar, vice-chairman of Daltex, one of Egypt's top exporters of potatoes, said that since June 2013 Russia has cut its potato imports from the EU and increased imports from Egypt. “Whereas Egypt exported between 50,000 to 70,000 tons of potatoes to Russia in the past, today we export five times that amount,” he said. If the market could absorb more, Egyptian exporters would be able to handle the increase and deliver larger quantities. Recent events have resulted in a good opportunity for Egyptian exports, Al-Naggar said, though the country will also be competing with Morocco and Turkey. Turkey has the advantage of greater proximity to Russia and can deliver via land routes, while Morocco has a five-day shipping advantage over Egypt because its ships arrive at Russia's northern ports where the cargo is offloaded onto trucks and transported to various destinations. Good quality and delivery time are also essential to effective competition. For Egypt to boost its food and agricultural exports, Al-Naggar said, it needs to work on its infrastructure, which would allow easier and faster transportation of goods as well as cold storage to preserve fresh produce. The EU has not been happy with countries offering to step in to fill the gap left by the ban. Besides Egypt, these countries include Brazil, Turkey, Ecuador, among others. Reports say the EU has been trying to dissuade countries that have decided to export to Russia, saying that their willingness could compromise resolution of the crisis in Ukraine. Bloomberg has reported an ING Group estimate that the year-long EU trade embargo could cost the bloc €6.7 billion ($9 billion) in lost production and up to 130,000 jobs. The EU has already announced €125 million ($166 million) in emergency support for farmers hit by the ban. It sold €1.26 billion of fruit and €769 million of vegetables to Russia in 2013, according to Bloomberg. “Markets are free, and it is only natural that producers should export to where they find opportunities,” Al-Naggar commented. Mostafa Al-Naggari, chair of the export committee of the Egyptian Businessmen's Association (EBA), was optimistic about the export situation, saying that the EU ban was a good opportunity to increase Egyptian exports to Russia. However, he said that any agreement between politicians should be translated into a formal trade agreement to guarantee the rights and obligations of both parties. Payment mechanisms, for example, should be clearly spelled out, he said. “There have been incidents in the past when Egyptian exporters had a hard time retrieving the value of their goods,” Al-Naggari said. Any agreement should include a list of goods that can be exported and not allow the other party to import single items because that would put pressure on the local market. “This could cause a shortage domestically and push prices upwards,” he said, adding that prices of agricultural produce were highly volatile because it was difficult to build up strategic reserves. He added, “Russia is a huge market, especially since much of what we export to it could then be headed for neighbouring countries.” Al-Naggari said that any free-trade agreement with Russia should remain in force if Russia settles its differences with the EU since Egyptian exporters would already have made plans based on the agreement. He was not worried about EU retaliation. As a result of the sanctions against Russia, the bloc now has a domestic goods surplus. This has pushed down prices, making the importation of Egyptian goods by EU countries less attractive. “Even if they do not shut their markets to our goods as a result of our agreement with [ECU], prices would not be competitive and we would not be able to sell large volumes within the EU,” Al-Naggari said, adding that even the price of Egyptian mangos has been affected by the Russian sanctions despite the fact that the EU does not produce them. A free-trade agreement with Russia and the ECU could make up for Egyptian losses in the EU market.
