FTA Back in focus

By Aziza Sami
After years of what may be described as reluctance on the part of US politicians to support the establishment of a free trade area (FTA) with Egypt, the idea is now gaining momentum.
An FTA between Egypt and the US is expected to top the agenda of bilateral talks scheduled to be held in Cairo later this month between Egyptian Foreign Minister Amr Moussa and US Secretary of State Colin Powell. Egyptian diplomatic sources say that Cairo had the impression that the administration of former President Bill Clinton was not very much in favour of an FTA, but is hopeful that the Bush administration will be more forthcoming on the issue.
Speaking at a press conference held in Aswan last week that launched an extensive media campaign showcasing the achievements of US economic assistance to Egypt over the past 25 years, US Ambassador to Egypt Daniel Kurtzer said, "We have already begun to discuss ways of increasing our [bilateral economic ties] through freer trade [as well as] how to get better organised to actually open up free trade negotiations."
An FTA has long been advocated by the Egyptian government and private sector as a comprehensive solution to restrictions imposed through quotas and tariffs on the export of several types of Egyptian goods to the United States. Such an agreement would also have manifold political significance. Through increasing trade ties with Egypt, the United States would signal its readiness to step up its economic relations so that these would be more on par with political relations. This shift is especially important given economic arrangements between the US and other signatories to regional peace agreements. Israel already has an FTA with the US. A free trade agreement was signed between the US and Jordan at the end of last year, the procedural aspects of which are now being worked out.
Kurtzer's statement in Aswan, and his delineation last July of some of the prerequisites needed to set up a free trade area, signalled a marked shift in US policy regarding an Egypt-US FTA.
In the past, US officials had not been receptive to the idea of establishing an FTA with Egypt because such an arrangement requires a Congressional mandate, which, according to Kurtzer in previous statements, had not been forthcoming. But after intense lobbying by the Egyptian government and businesses and expressions of support for an FTA by a group of US congressmen late last year, a change in the political climate ensued.
This policy shift has been most apparent in statements by Kurtzer himself: as recently as 1999 the only free trade arrangements with Egypt that he spoke of were ones involving Israel. At that time he proposed that Egyptian textiles and produce enter the US under an arrangement among the three countries. Such recommendations did little to alleviate Egyptian officials' concerns about what they considered to be the US's highly partisan approach to trade in favour of Israel.
Strong support for an FTA is also being expressed by members of the US-Egypt Presidents Council, the high-powered body comprising business representatives from both countries. Members of this council were also in Aswan to attend the USAID celebrations. Richard Gadbaw, vice-president of General Electric's Law and Policy Division, who heads the American side of the council, told Al-Ahram Weekly that the council "will push very hard with the new Bush administration" for the establishment of a free trade area between Egypt and the US. "Since the presidents council convened last March, the whole issue of a free trade area with Egypt has moved [substantially] and is much more under consideration by the US government," Gadbaw said.
The turning point seemed to have been when Congress gave the go-ahead to negotiate the establishment of an FTA with Jordan last year. "With that, the whole issue of prior legislative authorisation seems to be over," Gadbaw said. As Egypt is the only other Arab country to have signed a peace agreement with Israel, and having done so prior to Jordan, proponents of an FTA felt justified in stepping up their lobbying efforts for such an approval.
A starting point for talks between Egyptian and American private sector representatives on the council is defining what Gadbaw termed "the potential beneficiaries in a free trade area." But the goal of such talks, he explained, is to "help our governments to get into those negotiations with effective results. We have to take the existing political impetus and translate it into good policies on both sides."
The experiences of other free trade areas involving the US will be consulted in developing guidelines, said Gadbaw. These include the North American Free Trade Agreement (NAFTA) model and the FTAs with Jordan and Singapore, as well as ongoing negotiations for an FTA between the US and Chile, already given a high priority by the Bush administration.
Among the other issues discussed during the US delegation's visit to Egypt was the future of the US-Egypt Presidents Council itself. This council, because it was formed during the administration of former President Bill Clinton as part of the Mubarak-Gore initiative in 1994, will probably undergo a change in name and possibly in formation, Gadbaw said. He explained that it is not clear whether the new administration will want the council to operate in its current form "even though the main direction and issues involving the private sectors of both countries will continue."
With the accession of the new US administration, other mechanisms upon which bilateral economic ties are built are likely to come under scrutiny.
These are economic assistance, dispensed through USAID, and the US-Egypt Partnership, which was also established under the Mubarak-Gore initiative. Comprising four committees that deal with key areas of the economy, the partnership has been, over the past three years, "the forum for discussing and establishing new priorities, to be implemented through USAID," according to Kurtzer. Which now means that the partnership is charged with developing proposals to effect the transition from aid to trade.
Concerning USAID, Congressional approval for funding must be obtained yearly as part of the US government's annual budget. Kurtzer, however, emphasised the new administration's political commitment to continuing economic assistance to Egypt according to previously announced plans. US economic assistance is undergoing a 5 per cent reduction annually over a 10 year period ending in 2007. For that year, according to the current schedule, assistance will amount to $400 million. "If you look ahead to the next five, 10, or 15 years, you can anticipate that the commitment to [the USAID] programme will remain pretty strong in Washington," said Kurtzer. Explaining this point, he said, "There is still very strong bipartisan support to continue in that direction. As long as the philosophy of economic assistance remains central to our interests in the region, I think we can sustain [the aid programme]."
Kurtzer said that the Egyptian economy is "progressing" and that reductions in assistance are being made because the economy now has capacities for trade and export "that it did not have 25 years ago." Notwithstanding this assessment, the inequity in economic relations between Egypt and the US remains substantial, with a trade deficit overwhelmingly in favour of the US. With more than $24 billion disbursed over the span of 25 years, economic assistance is the major component of bilateral ties and is expected to remain so for a while.
"There's been remarkably little publicity about what we do," Ambassador Kurtzer told reporters in Aswan last week during a visit marking the completion of a 20-year USAID project for $140 million worth of repairs and upgrading for the High Dam turbines and the completion of a $100 million project for the construction of a pumping and sanitary drainage system for the three major cities of the governorate. "We thought it useful to explain to the Egyptian public what we have, or have not, accomplished; where Egypt wanted us to work, or not; where the money has gone, and whether these projects were successful," Kurtzer said.
His statement was a clear reference to the image of USAID in Egyptian society. While injecting substantial sums into a wide range of infrastructure, health and other projects, it has been the butt of criticism in public forums, especially in political and academic circles.
In Aswan, reporters' questions to the US ambassador and USAID director Willard Pearson reflected scepticism over "whether the programme was benefiting the Egyptian economy as much as it was the US economy," given its reliance on American goods.
Questions were also raised about US economic assistance to Israel. For 2001 Egypt is receiving $695 million in economic aid and $1.3 billion in military assistance. Israel, in contrast, is receiving $800 million in economic assistance and more than $2 billion in military assistance. Israel's economic assistance is also being phased out, but this is being done in a manner that enhances Israeli military capabilities. According to Ambassador Kurtzer, "while economic assistance to Israel is being reduced by 10 per cent annually, 5 per cent of that goes back to the military side." Concerning the future of military assistance to Egypt, Kurtzer said that while he could not speak for the US Congress, for the time being he does not expect changes in the volume of this aid.
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