Free trade or false hopes?

Although the Egypt-EU association agreement is a fait accompli, the debate continues, writes Niveen Wahish
After six years of give-and-take and tough bargaining on both sides, the Egypt-EU partnership agreement was signed on Monday by Egyptian Foreign Minister Ahmed Maher, EU Council resident Anna Lindh, EU Commissioner for External Affairs Chris Patten, as well as the foreign ministers of the 15 EU member countries.
"The negotiations process was not an easy process" said Maher in his speech during the signing ceremony, adding "Both sides had to make difficult decisions because of their conviction that in the end this is a win-win situation."
Although the signing of the agreement may pass unnoticed by European citizens, who are more concerned with the strength of the euro and the expansion of the union, this is not the case with EU policy-makers who view the agreement with Egypt as a cornerstone of the Barcelona Process. Under this process, the EU has been negotiating free trade agreements with Mediterranean countries.
"For us it is important that Egypt sign [the agreement] and be part of the [Barcelona] Process. It [ the Barcelona Process] does not make sense without Egypt," said Michael Webb, head of the Mediterranean unit of the European Commission's Directorate General for External Relations.
For Egypt, the agreement is a major commitment to open up its economy. As Gamal Bayoumi, assistant minister of foreign affairs, put it, "When we began negotiating, the debate in Egypt was whether Egypt should have such an agreement or not. With time, the principle of having the agreement was no longer questioned. Instead, its terms became the issue."
A core component of the agreement is the establishment of a free trade area (FTA) whereby the EU, Egypt's main trading partner, immediately lifts all trade barriers to Egyptian industrial exports, while Egypt does the same over a 12-year transitional period beginning immediately following the agreement's ratification by the parliaments of Egypt, the EU and the 15 EU member countries.
At different times during the negotiations either or both industrialists and agricultural exporters were unhappy with the agreement.
However, agriculture proved the toughest issue. Bound by the Common Agricultural Policy, EU negotiators could not grant Egyptian agricultural exports into the EU the same access granted to industrial goods. This was unacceptable to Egyptian negotiators who bargained for larger quotas and longer seasons for Egyptian exports. But despite some concessions, Egyptian agricultural exporters are not completely satisfied with the final agreement.
Conceding that the terms of the partnership governing trade in produce are better than those of the 1977 cooperation protocol, which is currently in force, Alaa Diab, vice president of PICO Modern Agriculture, a major exporter, had hoped for more. He also pointed out that the delay in signing the agreement was not favourable, either, because it meant that by the time the agreement goes into force the quotas will need to be reviewed to accommodate the increase in production. The peak times for sale of Egyptian produce in the EU is during the winter and early summer.
While Diab says he wishes agricultural goods would receive the same treatment as industrial goods, some industrialists believe that their position is equally unenviable. It is expected that as Egyptian barriers to European goods are lifted, many local industries will be put out of business because of their inability to compete with European imports. But as Ahmed Galal, executive director of the Egyptian Centre for Economic Studies, (ECES) puts it: "There is no reform without winners and losers."
One of the industries expected to suffer is the car industry, which has been producing for local consumption. "This industry has been in its infant stage for 40 years, when is it going to grow up?" Galal asked.
But for outward looking manufacturers and middlemen Galal foresees that "exporters will have a bonanza," because they will have immediate unlimited access to the EU market comprising 350 million people. Such access is a major point of attraction of the agreement.
Galal points out that the agreement will push the Egyptian economy to become open, modernised and more competitive. He believes that opening up will force the economy to adjust. "If we wait until our economy is ready for competition, we would never do it."
In Galal's opinion the industries that will be negatively affected are those that are inefficient and would thus be headed for trouble, with or without the agreement.
"Those industries which have the potential can be given a helping hand," he said.
Such help can be financed from some 5.3 billion euros ($4.57 billion) worth of aid which the EU is making available for its Mediterranean partners.
"What the government might lose in revenues, because of the lifting of tariffs, it will make up for when increased economic activity generates increased tax revenues." said Galal
Galal said that a study by the ECES has shown that the agreement will result in a real contribution of one per cent to the Egyptian GDP.
Discussions about the impact of the agreement have typically focused on various productive sectors of the economy, neglecting the impact on the consumer. According to Galal, consumers will benefit because they will enjoy cheaper, better quality products.
Although the free trade area is the focal point of the Egypt-EU association agreement, it is not the only issue. Other aspects of the agreement include a cultural and political dialogue and cooperation on social affairs, including migration and human rights.
The EU initiated the negotiation of association agreements with 12 Mediterranean countries within the framework of the Barcelona Process aimed at free trade among European and Mediterranean countries by 2010. Egypt's signature of the agreement this week brings to six the number of agreements the EU has concluded with Mediterranean partners. Tunisia, Israel, Morocco, the Palestinian Authority and Jordan have already signed their pacts. Syria and Lebanon are in the process of negotiation, but are soon expected to follow in Egypt's footsteps.
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