As the global economy reaches low ebb, now is the time to recast the economic architecture of Egypt-US trade relations, writes Magda Shahin* Amidst global financial turmoil and the marked slowdown of the developed economies, the timing is ripe for Egypt to begin rethinking its trade relations with the United States. Egypt needs to plan ahead and forge a strategy with its major trading partner, which happens to be both the main culprit and main victim of the current crisis. No matter how much the world is expected to become multi-polar, the US will remain the single hegemonic state and strongest military power for some decades to come. The rethinking of Egypt-US trade relations must not be shaped by a narrow point of view. The present world economic situation and the onset of an extended and deep recession cannot be kept outside the frame of Egypt's rethinking exercise. Increased spending for domestic bailouts will lead to shortages of liquidity, finance trade credits, and foreign direct investment. This will create a severe situation, the impact of which should be assessed with great caution, making it all the more difficult for Egypt to approach the US. To say the least, the global economic landscape is not favourable in the coming months and it may even be years before the global economy starts recouping its strength and vitality. Imbalances in the world economic situation are creating havoc for developed and developing countries alike. It comes as no surprise that during the years in which the financial crisis was in the making, the Bretton Woods institutions (the International Monetary Fund and the World Bank) were out of the loop. They have often been blamed for not anticipating the crisis and not responding adequately. But how could they if they were forbidden from any kind of surveillance of US monetary and fiscal policies or for that matter any other developed countries? When already in the 1980s developing countries spoke of stronger and more balanced IMF surveillance, they were ridiculed. In the end, the international financial institutions of the 1940s were policing only the developing countries, each of which had to abide by a one-size-fits-all structural adjustment programme. Another no less critical failure is the lack of political will to bring the nearly seven years of multilateral trade negotiations of the Doha Development Round to a successful conclusion. The whole World Trade Organisation (WTO) spirit, based on free market policies and the survival of viable and competitive industries, risks going down the drain. Can we expect unconditional support in the US Congress for a renewed Trade Promotion Authority, which many believe to be a prerequisite for the successful outcome of the trade negotiations? It is all of these challenges that compel and shape Egypt's rethinking of its strategic partnership with the US. At this time, cultivating a long- term vision in a messy world could look futile, but prioritising this relationship will achieve the interests of both countries equally. From the US perspective, Egypt is an emerging and lucrative market for US goods and services as well as a hub for operating in the Middle East and Africa. Egypt remains an important ally in the region. Furthermore, the economic fate of Egypt will indeed impact its political leverage in the region, leverage that the US will always rely upon. Increased bilateral trade relations and encouraging foreign direct investment can therefore provide a sound platform for enhancing the security relationship. For Egypt, the cumulative impact of the present financial crisis coupled with the possibilities of reverting to protectionist policies and increased unemployment rates in the major economies make it a necessity for the country to be more forthcoming and ingenious in its relations with the US. Going calmly and with great care through the topical issues of concern between Egypt and the US, one cannot help but wonder why some have been blown out of proportion. USAID ($27 billion) was instrumental in building Egypt's infrastructure, modernising its economy and putting it on the right track for reform. Although Egypt was in total agreement with the gradual phasing out of economic aid from $800 million to $415 million over the past 10 years, the latest announcement of cutting aid in half came too abruptly and became a sensitive issue. USAID can still help education, health, vocational training, human resource development and private sector growth in the future. The continued support of the US government is important to ensure also -- in these difficult times -- an active presence for its businesses and industries in the well-maturing Egyptian economy. USAID, then, becomes an influential and practical tool to help the US as well as Egypt. Although Egypt is keen on negotiating free trade agreements (FTAs) with developed countries to help build up Egypt's capacity to produce value- added goods and further develop its services sector, another issue of contention has been putting FTA negotiations between the two countries on hold, which in turn has caused a virtual cessation of a constructive trade dialogue between them. It is true that trade and investment between the two countries has increased in the last few years and that the US is enjoying a surplus of $3 billion with Egypt out of nearly $8 billion in trade exchange. Clearly it would be beneficial for both countries to start in earnest an open dialogue; one not necessarily tied to a formal FTA. Opportunities for cooperation in services abound, such as regulatory cooperation, technical exchanges and developing and strengthening Egypt's infrastructure. These opportunities can be exploited without getting stuck on the FTA idea. Egypt's pending proposal to expand the successful Qualified Industrial Zones (QIZs) project to include eight of the poorest regions of Upper Egypt (Fayoum, Beni Sweif, Minya, Assiut, Sohag, Qena, Luxor and Aswan) is yet another issue hanging in the air and which necessitates quick and positive consideration on the part of the incoming US administration. The expansion of the QIZs will significantly increase employment opportunities and improve standards of living in these regions. Egyptian textile exports from QIZs amounted to $720 million in 2007, nearly three times the $251 million sold in 2005. The US and Egypt have an opportunity to build on and extend this success. It is understandable that in the present crisis such a proposal might be contentious, especially with the increasing US unemployment rate. This should be considered as a priority issue for the Egyptian government and the private sector alike, as Egypt must generate substantive arguments to allay the fears of US textile industries. The QIZs are not only focussed on textiles and apparel; the scope of the QIZs includes many other industries and their expansion could include food products, handicraft industries and cement factories, etc. The Generalised System of Preferences (GSP) is yet another tool that should enable Egypt to export a range of products (over 4,000) either duty-free or with significantly reduced tariffs to the US. Moving forward with a practical understanding of what the GSP package entails and how to make it work may generate greater export revenue, despite recession, as duty-free products benefit equally the Egyptian exporter and the US importer. Under this system, exports remain attractive and offer added incentive for buyers, especially in the context of the current economic climate. As a compliment to the GSP, the three US financial agencies, the US Export-Import Bank, the Overseas Private Investment Corporation, and the US Trade and Development Agency, could help sustain the Egypt-US relationship and generate increased trade and investment amidst this economic downturn. At a time when liquidity of foreign currency and an appetite for foreign investment is limited, these agencies are eager to offer the loans and guarantees necessary to stimulate trade and investment. Egypt, as an emerging market, must continue to develop its infrastructure to maintain and accelerate its current growth rate. By cooperating with US firms and using US goods and services, important investment can be acquired. Egypt was often criticised for not doing enough during its economic reform drive. The country, however, was of the view then that it could not afford shock therapy and insisted that economic reform should be tackled at an appropriate pace that suits its circumstances and developmental needs. Because of this foresight, Egypt is now considered among the success stories of economic reform. By the same token, it must be realised that political reform cannot be tackled overnight. Political reforms need to be done gradually, not rushed at the expense of stability and economic development. There is a dire need to think "outside the box", thereby breaking the institutional templates that would hold Egypt-US trade relations hostage to hasty political upheaval. The new administration in the US will bring with it new ways of thinking and new directions and Egypt must be looking to this future. Let us ready ourselves and do the groundwork to launch a new vision for our relationship with the US. * The writer is director of the Trade-Related Assistance Centre of the American Chamber of Commerce.
