The United States
US President George W. Bush was not talking about trade when
he stood next to President Hosni Mubarak last month and declared
that the US and Egypt have "a close and meaningful relationship."
Military and security issues dominated Mubarak's four-day visit to
Washington, as the two leaders conferred on Israeli-Palestinian
bloodshed and America's stance toward Iraq.
But behind the scenes, Mubarak pushed for new talks on a
long-envisioned preferential trade deal that would give Egypt's
textile and produce industries greater access to the American
market: the proposed US-Egypt free trade agreement. Or, more to the
point, Mubarak got confirmation that the United States' message to
Egypt on the chance of an FTA is as lukewarm as before: Reform your
economy first, then we'll talk.
While US and Egyptian trade officials barely referred to the
FTA proposal publicly during Mubarak's visit, Business Today
Egypt has learned that Mubarak broached the subject briefly in a
private meeting with US Commerce Secretary Donald Evans. Evans
discussed the FTA idea in greater detail in a subsequent meeting
with Foreign Trade Minister Youssef Boutros-Ghali, says Amina
Ghenem, a senior assistant to Boutros-Ghali.
"They sort of agreed that this is something that both sides
would like to have, and that they need to get things going. Egypt is
working on its obligation to comply with the list of the things that
the US wants us to do," Ghenem notes, adding that the FTA proposal
"is neither in hibernation or alive. It was discussed in the sense
of 'What are the things we still have to do?' It is an issue that's
considered by the Americans, but we have to comply."
For an Egyptian business establishment now obsessed with
increasing its exports, the reaffirmation of Washington's "reforms
first, talks later" posture was certain to frustrate.
On one hand, the value of Cairo's friendship becomes more
apparent to Washington as other Arab countries raise objections to
the US war on terrorism. At the same time, having chased an FTA
since 1997, Egyptians may get the sense that they're being
leapfrogged in the worldwide competition for preferential trade with
the US. Jordan, for example, finalized a free trade deal with the US
last fall. Singapore is now reportedly close to inking its own
bilateral deal with Washington, while the South American nation of
Chile is in talks for its own pact.
"Egypt not only has to compete for political will, but for
time," says Hisham Fahmy, executive director of the American Chamber
of Commerce in Egypt (AmCham), which has spent considerable effort
lobbying for a US-Egypt FTA.
Yet American officials note that while they may be nagging
Egypt to liberalize its economic structures -- from customs to
patents -- they're also funding massive aid programs geared to
support reforms and increase Egyptian exporters' ability to reach
new customers in the US and beyond.
Last in line?
The relationship is inherently lopsided. The US sells far
more goods on the Egyptian market than it buys back: Imports from
America totaled $3.78 billion (LE 17.58 billion) in 2001, largely
wheat, corn, arms and high-tech equipment. Egypt exported just $878
million (LE 4.083 billion) in goods to the US in that time, mostly
fuels, apparel and textiles. The trade gap has been almost evenly
redressed by massive US military and economic aid; only Israel
receives a larger share of the US aid pie. But the trade deficit has
been growing in the last decade, while economic aid is being
Business leaders want Egypt to enter the élite club of
nations with two-way trade deals with the US in part for symbolic
reasons -- to "signal US commitment to Egypt," as the independent
Egyptian Center for Economic Studies put it last year in a position
paper advocating an FTA.
For the garment and textile industries, however, an FTA would
be far from abstract. Egyptian textile shipments into the US are
limited by a quota and are subject to tariffs as high as 35%.
Industry officials say their most pressing goal is not to expand
their US sales -- it's to recover business they feel they're losing
to other countries.
Jordan can now avoid most textile tariffs because its FTA
eliminates duties on goods flowing to the US. (For more on the
Jordan-America FTA, see bt's February 2002 issue, page
34). And textile exports from many sub-Saharan African countries
receive preferential treatment under the African Growth and
Opportunity Act signed in late 2000 by then-US President Bill
Clinton. Those include South Africa, Botswana, Namibia and Lesotho.
(On top of that, Bush recently sent his trade representative to
Africa to explore the possibility of negotiating comprehensive
free-trade pacts with those countries and with the tiny kingdom of
"The damage is already done," says Mohammed Kassem, whose
World Trading Co. in Mohandiseen brokers $75 million worth of
garments annually. "There is already a diversion of trade from
No studies have quantified the drain yet, says Kassem, who
also chairs the Egyptian Garment Exporters Association. But fellow
businessman Galal Al-Zorba says he's sure he's losing business.
Al-Zorba is chairman of Nile Clothing Co., which manufactures 12
million pairs of jeans and 300,000 dress shirts each year for
leading brands including Levi's and Van Heusen.
"I talk to the customers in the United States, and they say
they feel there is an advantage working with duty-free countries
that have a 35% advantage because of the duty rate," Al-Zorba says.
"At some point, the production capacity in those duty-free countries
will increase, and we'll be out of luck."
Apparel and textiles are Egypt's strongest incentives to get
an FTA. But a deal would also benefit some fruit and vegetable
producers, says the Foreign Trade Ministry's Ghenem, who notes that
few other major sectors would win a significant boost. Non-textile
products from Egypt generally face less than 2% tariffs on entry
into the US, according to the Egyptian Center for Economic Studies
(ECES). Egyptian-made furniture, for instance, already enters the US
tariff-free and unlimited by quotas.
While there are no talks underway on a US-Egypt FTA,
Mubarak's visit ended with questions of bilateral trade being
referred to other forums. Officials intend to revive the US-Egyptian
Presidents' Council, a board of prominent business leaders from both
countries that discusses economic liberalization in Egypt.
Overseen by Mubarak and then-Vice President Al Gore after its
formation in 1994, the council will now be led by the countries'
trade ministers, Boutros-Ghali and Evans.
And the two countries have already agreed to work on the
economic reform measures the US considers a prerequisite to talks on
an FTA. The 1999 signing of the Trade and Investment Framework
Agreement was seen as a positive step, given that Mexico entered its
own TIFA with the US as a precursor to the North American Free Trade
Agreement. "Through this framework, we will try to be eligible for a
free trade agreement," Ghenem says.
Egyptian officials are pressing for more limited trade
concessions in the short term. Boutros-Ghali, after asking his US
counterpart to help lower barriers to Egyptian produce, ceramics,
construction materials, marble and granite, told reporters that the
US side had been "supportive, promising to open up a number of areas
for our products."
Bush the free-trader
Despite isolationist rhetoric during the presidential
campaign, Bush has become active in pursuing country-to-country
trade deals. After furious dealmaking, his administration in
December narrowly won approval in the US House of Representatives
for trade-promotion authority, also called "fast track," that would
let the White House set the specifics of trade pacts, with Congress
only approving or rejecting them.
The Senate is now debating final approval; talks on the
proposed pact with Chile are awaiting the outcome. Meanwhile,
officials in Singapore have expressed optimism that talks on their
own FTA could be concluded as early as this month. And Bush
announced in January that he wants to start talks with Central
American countries with hopes of broadening NAFTA to span the
Americas by 2005.
But that doesn't mean that Washington is going FTA-crazy.
Jordan's pact was held up until the 9/11 terror attacks presented a
pressing reason to shore up support in the region. And not even the
war on terrorism makes trade preferences a slam-dunk. After
providing vital support for the US bombing in Afghanistan, Pakistan
expected the US to reward it by raising quotas and lowering tariffs
for its textile and apparel industry. But congressmen from
textile-producing states protested and refused to support fast-track
until Bush drastically downsized the payback to Pakistan. The
dealmaking even forced the administration to revise an existing
trade deal with Caribbean nations to the benefit of US dyeing and
finishing plants. That turn of events clearly shows how protecting
US jobs can nullify foreign policy priorities.
Pakistan's disappointment could also be a bad portent for
Egyptians hoping to boost their own textile quota in the US.
Meanwhile, Egypt is scheduled to see all tariffs with Europe removed
over 15 years through its association agreement with the European
Union. That could tilt Egypt's trade interests away from the US and
"I think once Egypt's market is opened by the EU, then there
is no point worrying about anybody else," says AmCham's Fahmy. "If
you're competing with the whole of Europe with zero tariffs, then
you'd better have your act together by then. It doesn't make any
difference if there is a US free-trade agreement or not."
The laundry list
The US has never cited protecting its own textile industry as
a reason for delaying FTA talks with Egypt. Rather, the official
line has been that Egypt isn't ready yet. Departing US ambassador to
Egypt Daniel Kurtzer spelled it out in a March 2001 speech to
AmCham's members, saying negotiations on an FTA should not begin
until Egypt has conducted "necessary" economic reforms.
Specifically, Kurtzer said, Egypt needs to reduce agriculture
subsidies, accelerate privatization, reform taxes with incentives
for investors, streamline customs and the courts, and pass laws to
protect intellectual property rights.
Among FTA-watchers, Kurtzer's prerequisites became known as
"the laundry list." But they weren't the pet peeves of a lame-duck
diplomat. Rather, they reflected the new demands the world's
developed nations have been pressing in international trade: not
just open borders, but the same rules on both sides of the fence.
Multinational corporations want uniform, efficiently administered
regulations from antitrust to product safety in every country in
which they operate.
Even if Washington were to come to the table for an FTA with
Egypt, some of the conditions might be irksome for Cairo. Congress
is expected to approve fast-track authority only with the caveat
that future trade pacts give weight to labor and environmental
concerns, at the insistence of Democrats.
Ahmed Ghoneim, a Cairo University assistant professor of
economics who has consulted with the World Bank on regional free
trade, speculates that an FTA might also oblige Egypt to implement
human rights protections or alter judicial procedures -- changes
that grow from an American perspective that may be out of step with
Egypt's moment in its political history.
"The problem is that in order to enter an agreement with the
US, there are always other measures that can be related to human
rights, or a judiciary regime, that might affect the sovereignty of
the Egyptian government and might not be at the right time to
implement such changes or reforms," Ghoneim says.
Some non-ideological conditions, too, could be inappropriate
to foist on Egypt, Ghoneim adds. He points in particular to
Kurtzer's suggestion that negotiations on an FTA should begin after
Egypt adopts WTO agreements to completely liberalize
telecommunications services and remove tariffs on computer products.
"I think that's a matter of sovereignty," Ghoneim notes. "Everyone
has his priorities. I know my priorities. You know your priorities.
You don't have to push me for it."
Even when Egypt agrees on a concept of economic reform --
such as introducing strong legislation protecting foreign copyrights
-- it would be unfair to hold up an FTA until Egypt can implement
them to American standards, Ghoneim says, pointing out, "Who said
that there is no will to have a strong law regarding intellectual
property rights in Egypt? The problem is not having a law. The
problem is how to enforce it. You don't have the enforcement
capacity to enforce such a law. Therefore you need some technical
assistance, and that takes time."
The ECES argued in its policy paper last year that an FTA
should not hold Egypt to US environmental standards. An FTA could
include "the harmonization of some domestic policies, [but not when]
the adoption of one country's standards for certain policies may be
costly for the other to adopt in view of differences in their level
of development. ... While it would serve the interests of Egypt to
adopt new intellectual property rights, it may not be as beneficial
to adopt the US level of environmental standards."
At any rate, AmCham argues that all these questions can be
addressed at the same time that an FTA is being drafted. "We're
saying, 'Let's enter into negotiations and have a timetable and
identify the issues that need to be discussed as part of the
negotiations, but not as a prerequisite'," Fahmy notes.
Egypt is making progress on the laundry list. Laws on
e-commerce, intellectual property and investment are moving in the
People's Assembly. The US Trade Representative's office praised the
Ebeid government in a 2001 report for its privatization of insurance
and transportation concerns and its development of low-hassle
But perhaps the most difficult issue on the laundry list is
also one of the most common complaints by foreign business people:
Egypt's import-export bureaucracy is erratic, inefficient and slow.
The same USTR report said that tariff rules are complex and that
Egyptian customs agents often set tariffs arbitrarily -- for
instance, charging tariffs based on a shipment value 10-30% higher
than reported because of suspicions that importers may be
under-reporting the shipment value.
Businessman Adham Nadim says he knows the trouble with
Egyptian customs all too well. Nadim deals with customs as he
imports lumber and exports handcrafted furniture from his Dokki
factory. In February, Nadim persuaded a French company to let him
have a shot at manufacturing a full line of armoires, tables, beds
and other furniture. If he could duplicate the company's samples to
its satisfaction, the contract would keep his factory busy for a
year. The French firm shipped 40 sample pieces; by law, they were
supposed to be duty-free.
"The container arrived at customs, and [customs officials]
wanted us to pay full duty on the pieces," Nadim says. The samples
sat in port for three weeks while Nadim wrangled with officials.
Ultimately, he had to give authorities a cash deposit equal to the
full duty amount, LE 40,000. He'll get the money back after he pays
to ship the samples back to France. The officials also insisted on
having an agent sign his name on each piece of furniture to
guarantee that the pieces shipped back were the same ones that came
in. The foreign client "could not understand the delay in time in
producing the samples," Nadim complains.
"And this is repeated over and over again, when we need to
get in our lumber, when we have a problem getting spare parts -- it
goes on and on," adds Nadim, who's also a board member of ExpoLink,
the Egyptian Exporters Association. "When you put that against a top
[government] official's statement about the importance of aiding
exports, where do we fall? It's a philosophy that needs to be
addressed at all levels of government, not just top
Business advocates say the customs bureaucracy resists
change, making its reform a stiff challenge for government
"For a long time, we were trying to convince the Egyptian
government of what should be done. Now, when you sit with any
minister or the prime minister, they speak as if we were speaking.
They know," says AmCham's Fahmy. "It's a matter of, OK, how do you
deal with the bureaucracy? How do you get what is being said by the
top management -- in this case, ministers -- to filter down to those
who are implementing?"
A senior Foreign Trade Ministry official who asked not to be
named said changing the culture in the customs bureaucracy will
require "a very strong hand that's determined, and a clear vision,
with no discretionary [policies], just orders."
With European trade growing in importance, there is doubt
that Egypt can meet the US prerequisites in time for it to matter.
Export promoter Mahmoud Bayoumi, for one, is optimistic that Egypt
can achieve marked systemic changes in a short time.
"The mechanism in the government itself is starting to
change," says Bayoumi, an ExpoLink official. "Some changes don't pay
off soon. But let me tell you, according to the prevailing
indications and the direction in which our government is going,
export is becoming a vital issue on all levels. Egypt is entering a
new era of improvement in this sense, coping with the 21st century
requirements and the international language." -bt
On The Record With US Ambassador C. David Welch
Reform Now, Profit Later
Representing America to Arabs angry with Israel was
challenging enough when C. David Welch became US ambassador to Egypt
in August 2001, following diplomatic assignments in Damascus, Amman
and Riyadh. After 11 September, resentment toward the US war on
terrorism made the job harder. But Welch remains steadily optimistic
that US ties with Egypt will strengthen. In an exclusive interview
with bt in late March, Welch urged patience despite
the lack of visible progress toward a US-Egypt Free Trade Agreement.
While the US insists on economic reforms as a prerequisite for
talks, Welch said such steps would bring immediate benefits by
encouraging greater US investment in Egyptian business. Welch also
said President George W. Bush "has made no specific decisions" about
When President Hosni Mubarak stood beside his US counterpart
at a White House press conference in early March, Bush took the
occasion to announce "a new initiative to increase economic and
educational opportunities" throughout the Middle East. The timing
might have suggested that the new initiative would benefit Egypt.
Not exactly, as it turns out.
As Welch explained to bt, the new initiative,
led by Secretary of State Colin Powell, will come with significant
new foreign aid dollars. But since the US already sends Egypt aid
second only to Israel -- including $959 million on an accelerated
schedule after 11 September -- the new money isn't coming here,
Welch confirms: "Frankly, when Israel and Egypt are such high
beneficiaries of our existing assistance, there's a lot of
competition for the remainder and any new assistance. I think the
new assistance will be directed elsewhere."
Conceivably, the Powell Plan could inspire new programs here
with Egypt's existing aid, Welch adds. More likely, though, is that
the US will look to replicate successful Egyptian programs
elsewhere, Welch says: "We think we have some good stuff going here,
and we can offer some ideas."
BT: Has there been any recent progress toward negotiating a
Welch: When President Mubarak went to Washington [in
early March], there were a number of ideas that were put on the
table on how to deepen and enrich economic dialogue. The possibility
of a free trade agreement is out there. It is real. You will see, in
the coming weeks, some further movement toward that.
It's a long process to get to negotiations, and then to turn
those negotiations into an agreement. [US Trade Representative
Robert] Zoellick met with Mubarak. They have agreed on a sequence of
steps that would enumerate what is necessary to get into
negotiations. I expect that Ambassador Zoellick will visit Egypt to
push this along further no later than the latter part of this
Without an FTA, we do a considerable amount of trade and
investment in Egypt. This interaction between us, up and before an
FTA, could do a lot to improve this. American companies want to do
business here. That means jobs for Egyptians workers. But all
complain that the cost of doing business is high in Egypt. That
ranges from the pure bureaucratic legwork to high import duties on
inputs. This stuff can be fixed. It can be fixed tomorrow.
I can tick off several things that ought to be done: Reducing
the cost of doing business. Tariff reform. Taxation reform. Labor
reform. The ability to do something as simple as convert foreign
currency. A business needs this to operate.
Let's find a way to make it easy -- rather than have the
shipments sit in customs for three to six months, have 50 different
ways to tax them, and have all kinds of rules about how you can hire
and fire employees.
BT: Did 11 September have a chilling effect on US business
initiatives in the region?
Welch: I was very attentive to that potential problem
after 11 September, and I'm quite proud to say that American
companies that are involved here in Egypt didn't run for the hills.
They're still here. In contrast, we've got a couple of significant
new interests in Egypt. QualComm made a major commitment to pursuing
opportunities in wireless. Apache Oil has made major new
We've gotten several other indications of interest from
companies that are still competing. Private American investors have
come in to buy companies that are up for privatization. That those
people are still willing to come and invest means that, however they
calculate the political risk, they're looking at the business
opportunity as more important.
BT: There is a perception in Egypt that the US rubber-stamps
everything Israel does. How can the US persuade this region that it
Welch: It's our responsibility to protect the
interests of the United States. We have decided that the way to do
that in this region is to seek peace between the Arabs and the
Israelis. We have a long record of accomplishments in doing that.
Our responsibility is to continue that, not to allow ourselves to be
frustrated by the setbacks that occur.
There is a responsibility that lies on the side of the people
in this region and their governments. That is to understand that
they're players, too. What they say and do count. It is bitterly
disappointing to Americans to note that as we are trying everything
we can to address this problem, we are still labeled as part of the
problem. In some cases, there is even anti-Americanism in the media
[and] intellectual circles that sometimes spills over into what I
would call racist hatred. That's fundamentally antithetical to our
values and very damaging to the image of those who say they espouse
a principled cause.
BT: What is the likelihood of US military action in
Welch: Oh, that's a completely hypothetical question
at this point. We've got a lot of other stuff that were doing in the
war against terrorism. We're still fully occupied in Afghanistan,
closing down Al Qaeda and the Taliban [and are] quite immersed with
the diplomacy to calm the violence and restore negotiations on the
The President has expressed his deep concern about the threat
that Iraq poses, but he's made no specific decisions. Those matters
will be addressed in due course. I would caution you against any
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