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The quest for the holy grail

American Chamber of Commerce in Egypt
Business Monthly, December 04

Letter from the Editor

Cam McGrath

The push is on once again to secure an Egypt-US free trade agreement (FTA) with the usual optimism in the state press, but few are buying it this time. Minister of Foreign Trade and Industry Rashid Mohamed Rachid broached the subject with US Trade Representative Robert Zoellick during a high-profile visit to the United States last month. Zoellick, however, seems unlikely budge from his hardened stance against Egypt on the issue.

Many here consider his objection a personal grudge over Egypt’s 11th hour decision in May 2003 to withdraw its support for a US-led suit at the WTO against the EU’s moratorium on genetically-modified foods. Zoellick, however, maintains it was Egypt’s slow pace of economic reforms and the hubris to believe it would win an FTA simply because it was a “big and important” country.

In the 18 months since the fallout, Egypt’s FTA dossier has sat on the backburner while US officials continue to push trade reform under the umbrella of a Trade & Investment Framework Agreement (TIFA). Washington in the meantime has doled out FTAs to other “more economically reformed” countries in the region like Bahrain and Morocco. It is now seriously considering an FTA for Oman.

At first glance, Oman’s consideration may seem a serious slap in the face to Egypt. After all, isn’t Oman an insular, petro-centric sultanate? The IMF certainly seemed to think so when it red-flagged the monarchy in 1994 for its mushrooming deficit, Byzantine customs regime and public sector-dominated economy.

What a difference a few years can make. While Oman still has much work to do, it has managed to diversify its economy, abolish tariffs and quotas, and earn kudos for its aggressive privatization program. Its economic reform program, propelled by obligations it inherited when it joined the WTO and GCC customs union, has put the sultanate on Washington’s FTA shortlist.

Egypt, however, has also made significant progress. The country’s business climate has improved now that it has addressed its exchange rate policy, cumbersome tax system and customs regime. But don’t take the government’s word on it. Check out the bourse indices, which have soared since the cabinet reshuffle last July.

So why then is Oman inching closer to an FTA while Egypt’s prospects, in the short-term at least, appear slim? A report by the US House of Representatives Ways & Means Committee, which visited Cairo last month as part of a regional fact-finding mission, offers a few clues.

For starters, the delegation pointed out that without the backing of congressional constituencies, FTA talks would go nowhere. With that in mind, it’s not surprising that the thrust of the report was trade issues that directly affect US companies doing business with Egypt. It cited specific concerns over IPR violations and “unjustified” import restrictions on certain US products.

What was surprising to some, however, was the delegation’s observation that “Egypt does not seem to have a sense of urgency about the timing to negotiate an FTA and it seems instead to rely on its size in the region, its relationship with the United States, and its strategic importance.”

That hardly seems fair. After all, Egypt has made a concerted effort to please Washington at a time when even traditional US allies in Europe are showing hesitation. In the 18 months since Zoellick’s snubbing, the government has made a host of concessions it hoped would revive FTA talks. The congressional delegation, however, admitted it was highly skeptical about whether Egypt could sustain its reform drive given its track record.

Egyptians, meanwhile, are skeptical of Washington’s intentions given its track record. Many here believe the US is simply baiting Egypt with an FTA to push its political agenda. The growing momentum to establish QIZs, something unthinkable only a few years back, suggests many Egyptians have serious doubts of securing an FTA. For them, an FTA is simply an economic grail quest.

 source: AmCham Egypt