Ten years in the making, the Egypt-EU Association Agreement finally came into force this week, writes Niveen Wahish The implementation of the Egypt-EU Association Agreement was a long and difficult process. It took four and half years to conclude negotiations that started in 1995, two more years to sign the agreement (2001) and an additional three to have the agreement ratified by the Egyptian parliament and the individual parliaments of the then 15 EU member states. The agreement lays the groundwork for cooperation on a wide range of issues including economic and trade relations, as well as political and social cooperation. It is the trade aspect of the agreement that has attracted the most attention and remains controversial. Although the agreement allows for tariff-free and quota-free entry of Egyptian industrial goods into the EU market -- which was already possible within the framework of the 1977 cooperation agreement -- it stipulates that Egypt should open its market to EU industrial goods and products as well, a provision which opponents argue spells disaster for local industry. However, the agreement does provide for a 12-year transitional period during which Egypt can lower its tariffs gradually. Although the agreement does not grant similar free entry to Egyptian agricultural products, there are some advantages for Egypt. The quotas for Egyptian agricultural products have been extended, for example, as have the periods during which they may be exported. In certain instances some agricultural goods are completely exempt from customs duties. And these agricultural concessions can be reviewed after three years. In return, Egypt has lowered tariffs on a number of EU agricultural exports, while processed agricultural products will enjoy reciprocal concessions. Like it or not, the association agreement is now a fact; the trade provisions of the agreement actually came into force in January. But the effects of the agreement cannot yet be estimated. According to Ambassador Nehad Abdel-Latif, secretary-general of the permanent secretariat for the implementation of the Egypt-EU Association Agreement, there are no statistics upon which to make this assessment. Ian Boag, European Commission ambassador to Egypt, said it was far too early to judge effects. They may not be discernible for even a year. According to Ahmed Ghoneim, assistant professor at the Faculty of Economics and Political Science of Cairo University, effects so far are minimal though positive. He explained that during the first four years tariffs will be dismantled on raw materials and components needed by industries. "The tariffs on these are either nil or five per cent," he said. "We are actually increasing the effective rate of protection," said Ghoneim explaining that the market remains protected while enjoying additional advantages. A 25 per cent annual reduction on customs duties for raw materials and industrial equipment is scheduled for the first three years. Industrial supplies, semi- manufactured goods and construction materials will initially be awarded a 10 per cent reduction starting in 2007. That will increase to 15 per cent each year until 2013. The problem, Ghoneim predicts, will arise when tariffs on finished products are gradually lifted. "If our industries do not use the time to seriously shape up, they will be in big trouble," he added. For the first two years after 2009, clothes, cosmetics, furniture, electrical domestic appliances and motor vehicles for the transport of goods will receive a five per cent reduction. That will increase to 15 per cent in the third year until 2016. From 2010 to 2019 the Egyptian market would finally start opening up to European cars, with a 10 per cent annual reduction during that period. Agricultural goods in the meantime will be allowed greater access to the European market. And products such as mangos, grapes, asparagus and watermelons will receive a full customs exemption. In fact, Gamal Bayoumi, who headed the Egyptian team to the negotiations of the agreement, pointed out that the agreement benefits Egypt's agricultural exports the most. Speaking during a seminar organised by the Egyptian Centre for Economic Studies (ECES), Bayoumi said that, "60 per cent of Egyptian agricultural exports are totally exempt from customs charges, whereas only 14 per cent of EU agricultural exports will enjoy some advantages upon their entry to Egypt." It is also hoped that the agreement will encourage more foreign investors to set up export-oriented industries in Egypt targeting the EU and other markets with whom Egypt has free trade agreements -- such as the Arab market and Community of Eastern and Southern Africa (COMESA). By streamlining the rules of origin of the EU partner countries, diagonal cumulation with these partners will be possible, thus boosting intra-Arab trade and investment. But despite the role Egyptian and European businessmen are expected to play within the framework of the free trade area, certain issues, such as EU entry visas, represent an obstacle. That particular issue, Ambassador Abdel-Latif said, could be ironed out within the framework of the agreement. "We are in constant talks to facilitate visas for investors and businessmen," he said. Matters such as these could be addressed within the framework of political dialogue, which will also tackle regional and international issues such as peace, democracy, human rights and regional development. In fact, Bayoumi stressed during the ECES event that despite the importance of the trade aspect of the agreement, the political and cultural aspects are equally vital. Social and cultural cooperation will tackle issues such as movement of workers, migration, cultural exchange, media and information. One institution that will contribute to activating cultural cooperation is the Euro-Mediterranean Foundation for Dialogue between Cultures and Civilisations to be established in Alexandria. The EU-Egypt Association Agreement is one of a series of similar agreements between the EU and countries of the Middle East and Mediterranean region. Inspired by the 1995 Barcelona Declaration, they form the basis of the Euro-Mediterranean Partnership covering security, economic and social relations. One of the most immediate consequences will be the creation of a Euro-Mediterranean Free Trade Area by 2010. Within that framework, the EU has already signed agreements with Tunisia, Morocco, Lebanon, Jordan, Egypt, Israel and the Palestinian Authority. Of Arab countries, negotiations with Syria are still underway. To implement the agreement, the first Association Council will take place in Luxembourg on 14-15 June. The Association Council is set up at ministerial level to provide political guidance, make key policy decisions and settle disputes on the implementation of the agreement. An Association Committee will also be created for the implementation of the agreement. It will have the power to make binding decisions based on consensus between the parties. Both Association Council and Committee will establish their own rules of procedure. Working groups and sub- committees can be set up by the council. The European Union has pledged some 221 million euros to Egypt in the form of development assistance. The sum will be aimed at enhancing trade, promoting the Association Agreement and improving the capacity of the financial system to deal with the credit needs of farmers, small food producers and the agricultural business. Part of the sum -- 20 million euros -- will be aimed at improving the living conditions and prospects of social reintegration of the most economically vulnerable and socially marginalised groups, such as disabled, working and street children. Meanwhile, the bulk of the sum -- 175 million euros -- will provide budgetary support to the Egyptian government. More money is on the way. Before the end of the year, Egypt is expected to receive a further 180 million euros. That sum is part of some 351 million euros the EU has committed to Egypt for the period of 2002-2004. The money will be directed at enhancing financial and investment sector cooperation, lending to micro-enterprises by the Social Fund for Development and restructuring the spinning and weaving sectors. A further 242 million euros has also been committed to Egypt for 2005-2006. The aim of these projects, according to European Commission Ambassador to Egypt Ian Boag, is "to participate with Egypt in the implementation of Egypt's intention to modernise and improve the life of its citizens". EU funds have also been used to help support Egypt's industrial modernisation programme, technical and vocational training reform and its enhancement of trade. The funds received by Egypt are part of the ongoing EU development assistance to Egypt under the framework of MEDA. MEDA is a budget line used for accompanying the Mediterranean partners' socio-economic reforms. Under MEDA, money is provided in the form of grants. Total funds committed to Egypt under the MEDA I bilateral assistance (1995-1999) amounted to 686 million euros -- 20 per cent of total MEDA I funds of 3.424 billion euros. In 2000, the European Council adopted a new MEDA regulation, MEDA II, which made available 5.4 billion euros in grants for the period 2000-2006 to all the Southern Mediterranean countries. Projects financed by MEDA I include the industrial modernisation programme, health sector reform and the enhancement of education. MEDA II budget programmes support the Egyptian government in the implementation of the EU Association Agreement and the transformation to a liberalised free market economy. Parallel to the MEDA programme, the European Investment Bank (EIB) also offers long- term loans. Its budget for 2000-2006 is 5.35 billion euros.
