EU partnership holds mixed blessings

By Niveen Wahish in Cairo and Sameh Abdallah in Brussels
After nearly six years of negotiations which witnessed long hours of haggling over minute details, the conclusion of the Egypt-EU partnership agreement ushers in a new phase of cooperation. As the agreement was initialled last week by representatives of both sides, the actual signing, say officials, is just a matter of months away.
Egypt's ambassador to the EU Raouf Saad, who initialled the agreement last Friday in Brussels with the European Commission's Director for External Affairs Peter Zangl, said the agreement paves the way for a more interactive bilateral relationship between the two parties -- a shift away from the traditional donor-recipient ties.
"The agreement gives a clear message that there is no going back on economic reform, and that Egypt presents golden opportunities for investment," Saad told reporters.
For Ambassador Gamal Bayoumi, chief negotiator to the Egypt-EU talks, the agreement was "long overdue."
"The signing of the agreement represents a brave move," Bayoumi said. "It launches us into the serious phase of the agreement; its implementation. We have to take advantage of this and make up for lost time."
At the core of the agreement is the creation of a Free Trade Area (FTA) providing for the free movement of goods, capital and services. Although the agreement also provides for political and cultural dialogue between the two parties, specifically on issues such as security, human rights, the role of non-governmental organisations and illegal immigration, it is believed that the FTA is the component that will have the greatest impact on Egypt.
Businessmen last week expressed mixed reactions to the agreement. Proponents say it will open a huge market for Egyptian products and provide unlimited export opportunities. They argue that the increased competition will force Egyptian producers -- hitherto sheltered in a relatively closed local market -- to upgrade the quality of their goods and services.
Hani Sorour, chairman of the 6 October City Businessmen's Association, and an exporter of medical equipment, said that Egyptian industries have to learn to survive in a competitive market.
"We cannot live alone in a globalised world," Sorour said. "Producers who depend on one market will soon perish." By learning to compete with European goods and improving quality, he said, Egyptian manufacturers will be able to enter other markets.
But most businessmen admit that the agreement is not without challenges. Ismail Osman, chairman of the Arab Contractors Company and president of the German Arab Chamber of Industry and Commerce, is "cautiously optimistic."
Private sector industry, he said, must make the most of the transitional period provided for in the agreement to modernise its production lines and improve the quality of its products.
Meanwhile, opponents of the agreement have consistently asserted that Egypt stands to lose from the creation of an FTA with EU member states. Local manufacturers fear that their products will not withstand competition from European goods once these are allowed free entry into the Egyptian market. They even argue that Egyptian goods could be subjected to unfair trade practices.
"A partnership means equal benefits for both sides, but this is not the case with Egypt and the EU," said MP Fathi Ne'mattallah, a former public sector textiles industry official. He claims that the EU will be able to prevent cheap, competitive Egyptian goods from entering its markets using anti-dumping regulations.
But industrialists are not alone in their reservations about the agreement. The Egyptian agricultural sector, which will benefit only from reduced tariffs and increased export quotas, opposes the agreement because it treats agricultural products and processed agricultural goods differently from industrial goods. All tariffs and quotas for the entry of industrial goods into the EU will be removed as soon as the agreement goes into force.
Liberalisation of tariffs on EU products will occur gradually over a 15-year transitional period. Capital goods and raw materials will be among the first items for which tariffs will be gradually reduced while finished products will be the last.
Dismantling tariffs on capital goods and raw materials is necessary for the growth of Egyptian industries and will facilitate the competitiveness of industry both locally and internationally, said an EU diplomat in Cairo. He added that "despite pushing out some companies which cannot compete, its benefits for the overall economy and consumers along with increased manufacturer competitiveness, are worth the inconvenience."
He believes that the structure of Egyptian industry will change from one based on the import-substitution approach to one that is export oriented.
The diplomat cited the EU's commitment to give Egypt 250 million euros for the Industry Modernisation Programme as a dimension of the agreement that is clearly to the benefit of local industry. Of this amount, 45 million euros have already been disbursed while the remainder awaits the implementation of the programme.
Proponents are also hopeful that over the medium and long term, the agreement would help to attract investors to set up shop in Egypt. By doing this they would gain access not only to the local market, but also to the EU. The EU diplomat holds a similar opinion. "Being part of a wider regional economic bloc is an element which attracts foreign direct investments," he said.
Regarding the issue of agriculture, which has time and again slowed down the conclusion of talks, Egyptian negotiators have been able to secure for Egypt larger quotas than currently enjoyed for its agricultural goods as well as extending the periods during which they may enjoy lower tariffs.
For example following the agreement, Egypt may export up to 250,000 tons of potatoes, two and a half times the amount currently accepted by the EU. Orange exports will increase six-fold to reach 50,000 tons. In addition to these provisions, the privileges granted to agricultural products may be revised every three years, allowing for the possibility that they be increased. Agricultural quotas will also increase automatically by three to five per cent annually. And tariffs paid on Egyptian agricultural exports outside the season or above the specified quota will be decreased.
"The signing of the agreement does not mean that the agreement will be frozen in time," said Sayed El-Bous, adviser to the minister of economy, explaining that the dialogue between the two sides allows for accommodating additional requests by Egypt and the renegotiation of aspects of the agreement.
Now that the document has been initialled, the agreement will be reviewed by legal experts and translated into Arabic as well as 11 European languages. After it is signed by the foreign ministers of Egypt and the EU member states, it will be passed on to the People's Assembly for ratification.
The Egypt-EU agreement is one of a series of similar agreements between the EU and Mediterranean countries, such as Tunisia, Morocco, the Palestinian Authority and Israel. Inspired by the 1995 Barcelona Declaration, these agreements form the basis of a new Euro-Mediterranean partnership covering security and economic and social relations. One of the agreement's immediate consequences will be the creation of a Euro-Mediterranean free trade area by the year 2010.
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