Drive for a Free Trade Agreement Gains Momentum

Minister of Foreign Trade, Dr. Youssef Boutros Ghali

As the world watched events unfolding in Afghanistan in early November, government economists in countries around the world were locked in planning sessions on how to manage the repercussions of the war on terrorism on their domestic economies. Egypt’s forward-thinking former Minister of Economy and Foreign Trade, Dr.Youssef Boutros Ghali, was doing more than that: he was on a plane to the United States to discuss the possibility of a Free Trade Agreement [FTA], among other economic measures.

Following Boutros Ghali’s meeting with U.S. Trade Representative Robert Zoellick, State Department spokesman Richard Boucher said, "Department of State officials underlined the importance of the growing economic relationship between the U.S. and Egypt, and agreed that it is in the interest of both countries that U.S.-Egypt economic ties remain strong. In this regard, U.S. trade representative Zoellick expressed interest in the possibility of initiating discussions on the elements of a potential U.S.-Egypt Free Trade Agreement."

An FTA would allow the tariff and quota-free flow of goods between the U.S. and Egypt, and it is hoped, would boost Egyptian exports to the U.S. The trade imbalance between the two countries overwhelmingly favors the United States. In 2000, Egypt imported $3.313 billion in American goods, and exported $887 million to the U.S. The U.S. is Egypt’s second largest trading partner, while Egypt ranked 44th among U.S. trading partners in 1999.

An FTA could help alleviate the substantial blows Egypt’s economy will experience following the terrorism attacks on September 11th. Of Egypt’s three key external currency producers – tourism, Suez Canal receipts and oil exports – tourism and Suez Canal receipts are expected to decrease.

According to Boutros Ghali, who is now Egypt’s Minister of Foreign Trade, in remarks made at the National Press Club during his November visit, the Egyptian economy will lose $1.5 to 2.5 billion due to the economic fallout of September 11th. "In an economy that has an annual Gross Domestic Product of around $93 billion, this is a considerable amount removed from our economy," he said.

Discussion of a U.S.- Egyptian free trade agreement first surfaced following the 1994 Gore-Mubarak Partnership for Economic Growth and Development Initiative. The U.S. and Egypt took another step toward establishing more serious negotiations on free trade with the signing of the Trade and Investment Framework Agreement [TIFA] in July 1999.

Both Egyptian and American advocates of an FTA argue that it would create greater political and security ties between the two countries, in addition to removing restrictions on trade imposed through quotas and tariffs on the export of Egyptian goods to the U.S. market. Skeptics on the other hand, point to the serious pressure a free trade agreement will put on Egyptian manufacturers who will have to meet tough competitive standards, both on price and quality of their products.

The U.S.-Egypt Presidents’ Council has listed the establishment of an FTA as a priority issue. In the September issue of the Council’s Trade and Investment Dashboard Quarterly Update on Key Egyptian Economic Reforms and Issues, the Council stated that "trade and investment in Egypt and the surrounding region is likely to be subject to greater perceived risks in the wake of the September 11th attacks on the US, [but] on the positive side, a US-Egypt Free Trade Agreement may receive more attention from policymakers now eager to bolster stronger relations."

The Council has some precedent in expectations that support in Congress is growing for an Egyptian-American FTA. In a letter to President Bill Clinton dated July 28, 2000, twenty-six Senators, including the powerful chairmen of the Appropriations and Agriculture Committees, asked the President to negotiate a FTA with Egypt.

The call for a FTA from the Senators was followed on November 1, 2000, with a letter from 45 Members of Congress. Stating that an FTA was ultimately beneficial to American exporters, the Members called attention to Egypt’s commitment to market reforms as well as stating that Egypt is "essential to our regional security interests."

The letter further stated: “The government of Egypt is currently undertaking significant economic reforms to further expand and liberalize the Egyptian economy in the areas of private sector expansion, capital market development, and trade and investment…. The next step [following the TIFA of 1999] in our bilateral relationship is negotiation and implementation of a free trade agreement.”

"An FTA is an objective for Egypt. When Dr. Ghali was here, the State Department issued a statement looking forward to a future meeting to discuss possible elements of an FTA with Egypt," Egypt’s Ambassador to the U.S. Dr. Nabil Fahmy said. "This will take time - let’s not underestimate the challenges. If everything goes well it will take from 18 months to two years."

An FTA, especially one that will be negotiated within two years, could come as welcome news for Egyptian exporters to the U.S. Currently, exports are dominated by textiles (54 percent); oil and fuel (nearly 10 percent); carpets (7 percent); and cotton (nearly 7 percent).

Some concerns remain among U.S. officials and academics that Egypt must address what they view as the slow pace of Egypt’s privatization program, insufficient protection of intellectual property rights and the overhaul of customs regulations. Former U.S. Ambassador to Egypt Daniel Kurtzer stated before an American Chamber of Commerce - Egypt meeting in March 2001 that Egypt must address these concerns in advance of negotiations over an FTA.

"Some argue that an FTA is necessary - that it will lead Egypt to take the necessary reform measures," he noted. But given that the new Bush administration in Washington is amenable to "fast-track" promotion of trade with key partners, Kurtzer argued, "Egypt should take the initiative to reform in advance of an FTA."

Kurtzer said Egypt should further improve protection of intellectual property rights, reduce customs delays and red tape, overhaul the tax system, speed up the judicial system, and move ahead with proposed sales of state assets.

Former ambassador to Egypt Edward S. Walker, Jr., who now heads the prestigious Washington think tank Middle East Institute told the Washington Times that "an FTA would only make sense in light of significantly greater reform efforts in Egypt. In the absence of such moves, an FTA could actually wind up hurting Egypt. I see little prospect for short-term movement on an FTA."

For Egypt to jump-start negotiations with the U.S. for an FTA, many private-sector Egyptians believe it will take commitment from the Egyptian government to allocate its best and brightest in a sustained campaign in Washington. Observers have adopted a wait and see attitude following the recent restructuring of the Ministry of Economy and Foreign Trade into the Ministry of Foreign Trade. For an FTA to be inked, Egypt will need a strong ministerial team with progressive economic strategies to negotiate the reforms the U.S. sees as a prerequisite to an agreement. It most certainly will need an initiative similar to the one spearheaded by Boutros Ghali in November for a FTA to become a reality. —