EGYPT: Another Regional Step Past WTO

By Adam Morrow Reprint | | Print |

Adam Morrow

CAIRO, Dec 31 2005 (IPS) - Egypt signed a free trade agreement (FTA) with Turkey this week after several rounds of bilateral negotiations. The regional agreement marked a success after the disappointment through the negotiations at the trade ministers meeting in Hong Kong.

Signatories hope the Egypt-Turkey deal will serve to boost mutual trade and investment and promote the Barcelona Process, which aims to create a Free Trade Area among Mediterranean basin countries by 2010.

“We have already experienced a surge in trade and investment in anticipation of this trade agreement. The business communities in both countries are extremely bullish on the prospects,” Egyptian minister for foreign trade and industry Rachid Mohammed Rachid said in a statement issued after the signing.

The minister added that the potential for trade between the two regional giants was as much as 4 billion dollars within the next few years.

The FTA must still be ratified by the two countries’ parliaments before going into effect.

Turkey currently represents Egypt’s sixth largest trading partner. Total bilateral trade stands at some 718 million dollars for the first nine months of 2005, up from 550 million dollars for the same period in 2004.

Under the terms of the deal, customs duties on a range of Egyptian and Turkish products will be phased out by both countries over the course of the next 12 years. The agreement also envisages further trade liberalisation in the area of agricultural products, with Egypt receiving concessions on strategic commodities such as rice, fish, and fruits and vegetables.

“On a basic level, the FTA will strengthen political and economic ties between the two countries,” a source at the Egyptian Foreign Trade Ministry told IPS. “And by opening up markets, we’ll have more potential for cross-investment, which will in turn make Egypt more attractive to foreign investors.”

Ministry sources further point out that, under the terms of the FTA, Egyptian industrial producers will be able to import industrial input from Turkey duty-free. These inputs can then be used to manufacture finished products for export to the markets of Europe under the generous terms of an EU-Egypt Association Agreement, which was signed in 2001 and came into force in 2004.

“This FTA will strengthen our ability to compete in Europe and attract investment from around the world,” trade minister Rachid said in a statement. “We want to push Egyptian corporations, who have the capacity, to move across national borders. As for Turkish investors coming to Egypt, they will gain access to Egypt’s large domestic market as well as its many favourable trading agreements.”

Egypt’s current administration of economically liberal cabinet ministers appointed a year and half ago has consistently promoted liberal trade policies such as tariff reductions and the privatisation of state assets.

Turkish officialdom was equally welcoming of the agreement. The FTA “will open a new door and lend big support for economic and trade activities between the two countries,” the Turkish President was quoted as saying in the daily Hurriyet.

Most local analysts have hailed the Egypt-Turkey pact as a healthy step towards freer regional trade.

“I don’t think there will be any really negative effects on the Egyptian economy as a result of the FTA,” Hany Genena, senior economist at local brokerage EFG-Hermes told IPS. “It will open the Turkish market – one of the largest in Europe – to Egyptian producers.”

He added, however, that Turkey’s formidable textiles sector could represent a danger to its Egyptian counterpart. “Turkish competitiveness in textiles could prove a threat in the medium term,” he said.

Simon Kitchen, a Middle East analyst at the New York-based political-risk consultancy Eurasia Group, agreed that higher quality, better-priced Turkish clothing could potentially pose a threat to local manufacturers.

“Turkish clothing can compete much better on quality than its Egyptian counterparts, and a little better on price than European clothing,” he said, referring mainly to the middle and high-end markets. “But Egyptian producers are likely to continue dominating the market for low-end clothing products.”

“The new arrangement could have the effect of forcing local producers to improve the quality of their production in order to compete,” he added.

Turkish textile producers exported more than 15 billion dollars worth of textiles and clothing in the first 10 months of 2005, according to the Oxford Business Group, a financial research firm devoted to emerging markets.

The Egyptian textiles industry, meanwhile, is vital to the local economy, accounting for more than a quarter of total industrial production. A major foreign exchange earner, the sector contributes 11 percent of the country’s manufacturing gross domestic product.

The industry is also a massive employer, providing work to roughly 25 percent of the industrial labour force.