An international mechanism exists that could substantially increase Egyptian competitiveness, if taken advantage of, writes Magda Shahin* The Generalised System of Preferences (GSP), a market access duty free initiative, is not new. It is not a novel trade scheme, nor is it a preferential model solely for Egypt. For over 30 years, GSP, in one form or another, has been offered by industrialised nations to developing and less developed countries as a means of fostering development. So why has Egypt snubbed this opportunity? Established under the rubric of the General Agreement on Tariffs and Trade (GATT) and put into effect in the early 1970s, the GSP was designed with a view to assist developing countries in the export of goods; boosting both capital gains and expanding their production capacity. Fundamental to GSP as incorporated in the multilateral trading system are the principles of non-discrimination and non-reciprocity, pursuant to the "Enabling Clause" in the GATT, which provides developed nations the chance to offer special and differential treatment to developing countries. Originally GSP tangible and concrete preferences, namely, significantly reduced or zero tariffs on specified exports, were applied to all beneficiaries in the same manner and were given with no additional strings attached. Such positive measures stand in stark contrast to what we have seen take place during and after the Uruguay Round, where "special and differential" treatment was reduced to a mere extension of the grace period for developing countries to implement their obligations under the World Trade Organisation (WTO). Varying shades of GSP schemes have since been enacted by over 25 industrialised nations: Canada, Australia, US, EU, Japan, Norway, Switzerland, Russia and Turkey, to name but a few. It is not surprising that the developing countries able to capture the benefits -- India, Pakistan, Indonesia, Thailand, Malaysia, Brazil, Mexico, South Korea -- have done so simply because they did their homework. Understanding the culture, markets and technicalities of the system, studying the lists of eligible products, and most importantly adapting products to meet GSP requirements and to fill specific market needs, has enabled these developing nations to maximise the potential of GSP. IS GSP AN OPTION TO BOOST EGYPTIAN EXPORTS? Countries like Lebanon, the Ukraine and others export over 50 per cent of their products to the US market under the GSP scheme, while Turkey and Tunisia export 25 per cent and 40 per cent respectively. At present, the total of Egyptian exports to the US benefiting from the GSP is a mere 2.6 per cent. Recent World Bank statistics have indicated that exports from Indonesia, Columbia and Peru have increased by 17 per cent, 25 per cent, and 62 per cent respectively under the GSP framework. Given these figures it seems undeniable that the GSP has something worthwhile to offer. Marwan Hammad, chairman and CEO of LOGIX Stone, agrees, citing the GSP as a "wonderful programme". According to Hammad, that Egyptian GSP exports only represent 2.6 per cent of the total of Egyptian exports to the US is "not a problem with the system, rather it is a problem with Egyptian industry"; namely a lack of infrastructure and technology and a focus on raw material export over value-added goods. Given the right support from the Egyptian government, the success of stories of India, Thailand, Turkey or even Tunisia under the GSP could be replicated here in Egypt. It is worth noting that there are limits to the export growth and development a beneficiary can achieve through the system. Once a country's exports of a particular product account for 50 per cent or more of the value of total US imports of that product, or exceed a certain dollar value ($120 million in 2005 and increased by $5 million annually), the exporter country can no longer receive GSP benefits for that item as it is deemed to be sufficiently competitive. Textile products of India and Pakistan, for example, have "graduated" from the GSP as these products are now sufficiently competitive. Countries themselves are also subject to "graduation" from the system, which occurs when the country as a whole is no longer deemed to be "developing", as in the case of South Korea, Singapore and Hong Kong, and China. Presumably, the GSP is instrumental in getting these countries and their industries to the next stage of development. "Graduation" simply suggests success; that the system has worked. WHERE DOES GSP FIT? GSP schemes are an integral part of the multilateral trade framework. Therefore it seems logical that they would be held to the rules of the system. Is this the case? Are GSP schemes integrated into the WTO, or are they strictly the prerogative of developed countries? We have witnessed since the Uruguay Round, a distinct evolution of the GSP system, which has departed from facilitating development through positive measures, to employing negative measures -- to embodying the carrot and the stick philosophy. Whereas before GSP was founded on non-reciprocity in the multilateral forum (developing countries were not obligated to give something in return for the receipt of preferences), we now see the unilateral imposition of conditions by donor countries manifest in environmental standards, labour standards, and the more general package of human rights. This shift has not been warmly welcomed, yet is tolerated by the majority of developing countries that continue to make use of the system. In many instances, the doling out of conditions has not been even- handed. In the case of the EU and Pakistan, for example, additional preferences were given to the latter in exchange for a commitment to control the trafficking of narcotics. As a result, trade was diverted to the detriment of India that could not benefit from such an exchange. While India successfully claimed its rights through the WTO dispute settlement mechanism, it is unlikely that other developing nations would follow suit and risk the benefits of GSP, no matter how unilaterally determined. According to US GSP expert Marideth Sandler, the US GSP programme is viewed strictly as the prerogative of the US government. The added features of labour, environmental and other standards are inevitable and will proliferate over time, regardless of the US administration. Essentially, developing countries can take it or leave it. But why shouldn't Egypt take it? Egypt is already obligated to comply with certain standards through existing agreements with the US and the EU. As long as conditions in the form of standards are applied evenly across the board (and we have seen the WTO enforce this principle), there is no reason for Egypt not to take advantage of the GSP system. DOES GSP REPLACE A FREE TRADE AGREEMENT? In delivering the keynote address at a recent TRAC/AmCham (Trade- Related Assistance Centre/American Chamber of Commerce) on GSP, US Ambassador to Egypt Margaret Scobey affirmed: "The US is committed to its role as an economic partner for Egypt. Despite turbulent economic times, we know that increased trade can bring many benefits to developing as well as developed countries." By no account is the GSP a replacement for a free trade agreement, which remains the ultimate goal of Egypt and the US. The realisation of this goal, however, is not possible in the foreseeable future as we are poised to enter a global recession and a new administration with an untold agenda is set to take hold in the US. Ambassador Scobey, however, powerfully asserted that "no matter what happens, either in our present elections or on the economic front, the US will continue to promote open markets and open investment as the surest means of advancing both US and global economic growth." In the interim period, the GSP is a golden opportunity to increase Egyptian exports to the US and increase Egyptian competitiveness, in spite of the poor economic climate. Making use of the GSP will by no means undermine requests to expand the Qualified Industrial Zones (QIZ) from which Egypt is already benefiting tremendously. On the contrary, GSP is complimentary to the QIZ and will only enhance Egyptian export potential on the whole. Egypt can no longer afford to snub the opportunities generated by the GSP. The time is ripe to make use of the system to boost Egyptian exports to the US, and beyond. * The writer is director of the Trade-Related Assistance Centre of the American Chamber of Commerce.
