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EU-Egypt: Exporters See Gains in EU Partnership

InterPress Service

Exporters See Gains in EU Partnership

Cam McGrath

CAIRO, Jun 9 (IPS) - A trade agreement between Egypt and the European Union has opened new markets to exporters and paved the way towards the establishment of a Euro-Mediterranean free trade zone.

The Egyptian-EU association agreement opens markets in all 25 European Union (EU) member states to Egyptian goods and sets out a multi-stage reduction of Egyptian tariffs and trade barriers.

The agreement had been signed in May 2001 and was partially applied in January this year. It took full effect this month.

"The main change that can be felt immediately is tariff cuts," says Barbara Stacher, first secretary for trade affairs with the European Commission in Egypt. "All Egyptian industrial products now enter freely (into) the EU market, and Egyptian tariffs will gradually be reduced according to a time schedule."

The EU is Egypt’s main trading partner. Egyptian exports to EU countries accounted for 40 percent of all exports in 2002, worth an estimated 1.6 billion dollars. Imports represented 34 percent of all purchases, and were worth an estimated 2.7 billion dollars.

Egypt’s chief exports to Europe are petroleum products, textiles and agricultural goods. Key imports include machinery, chemicals and foodstuffs.

Egypt, the most populous country in the Middle East (75 million), has traditionally protected its markets with high tariffs and complex regulations. The association agreement will open the door to more European goods, while bringing Egypt in line with World Trade Organisation (WTO) regulations.

"Under the agreement, Egypt first lets in products that are less problematic like raw materials, and then after four or five years it’s textiles, and then in the end, the products that they want to keep out of the market as long as possible," Stacher told IPS. "They have managed to negotiate an incredibly long transition period of 16 years."

The EU hopes the association agreement will lead to a free trade zone encompassing 37 European and Mediterranean countries. In February Morocco, Jordan, Tunisia and Egypt signed a regional free trade agreement. All four also have partnership agreements with the EU.

Egyptian exporters see both opportunities and challenges in the new agreement. Some fear abolishing tariffs could expose Egypt’s domestic industry to crushing foreign competition. But many believe it will lower their production costs while expanding markets for finished products.

"Egypt has hidden behind protective barriers for too long, and has lost markets to India and China," said one industrialist. "This (agreement) is going to hurt now, but in the long run it will make us more competitive."

Hassan El-Shafie, managing director of the Egyptian Company for Agriculture and Development says undeveloped agricultural sectors such as the cut flower industry are expected to get the biggest boost.

"Tariff reductions will make our cut flowers competitive with other countries in the region such as Israel and Kenya," he said. "I think this will lead to a 30 to 50 percent increase in sales in the next five years."

The association agreement removes tariffs, but leaves in place quotas on some farm products like potatoes, melons and asparagus. Agro producers argue that quotas could keep them from realising any significant sales growth in existing European markets. Yet even with these quotas, producers stand to gain from the EU’s recent addition of 10 new members.

EU expansion "will have a positive effect because all of the agreement’s regulations automatically apply to the new members," said Farouk Kandil, export manager of the Modern Agriculture Company (MAC).

MAC, a leading exporter of strawberries and grapes, generated over 600 million dollars worth of sales last year. Kandil estimates the new European markets could add 10 percent to sales.

"We are already receiving demands from Hungary and Poland," he told IPS. "Now we are in a position to carry on with the negotiations and to offer our production. And because it is the same standard for the whole EU, we don’t need to make new packaging."

Local clothing manufacturers are less enthusiastic. The agreement offers them few benefits, while opening the domestic market to fashionable European imports.

"It’s not going to be something new because our situation did not change," said Mohammed Kassem, chairman of the Egyptian Garment Exporters Association. "We already had duty-free access to Europe."

The textile and garment sector accounts for 40 percent of all non-oil exports to Europe. Kassem said a cooperation protocol signed in 1977 grants Egyptian readymade garments free access to EU markets. The new agreement extends this privilege to fabrics and yarn, but requires Egypt in turn to abolish its high tariffs on imported textiles.

The Egyptian government has already taken steps in this direction as part of its commitment to the WTO. Earlier this year it slashed, and in some cases completely eliminated, duties on the industry’s raw inputs.

"The government abolished duties altogether on some of the material and machinery that the industry is using, and that will help improve the competitiveness of the industry," said Kassem.

Yet even without tariffs, EU imports are not expected to flood the market. Like Egypt, Europe is losing ground to Asia’s economic tiger China. (END/2004)