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VIEWPOINT

QIZ: WHAT DOES IT MEAN FOR EGYPT?

On January 1, 2005, Egyptian textiles began fighting their toughest competitors for a share of the world’s largest market. Now that quotas have been lifted under WTO rules, textile giants India and China have significant advantages in the American arena. According to WTO figures, they stand to gain up to 65 percent of the US clothing market (up from a current 20 percent) with African and Mexican producers sacrificing the greatest shares. Nevertheless, Egypt has entered the running, thanks to its qualifying industrial zones (QIZs).

While Indian and Chinese producers will be subject to customs duties of anywhere from 10 to 30 percent, Egyptian manufacturers operating within QIZs will have open access for their products to the US market without duties or quotas. The fact that Egypt was able to obtain seven zones, as opposed to the one to two originally proposed, is an important achievement for Egypt, and for Minister of Trade and Industry (and former AmCham member) Rachid Mohamed Rachid.

Egypt-US trade relations had reached an impasse following the genetically modified organism (GMO) issue, but more importantly because of the perception that Egyptian reforms were moving too slowly, if at all. Mr Rachid’s trip last month to Washington, accompanied by heads of business organizations including AmCham, ended that impasse. In meetings with US trade representative Robert Zoellick, with congressmen and think tanks, the response was positive. Mr. Rachid didn’t talk about Egypt’s reform plans, but about specific actions already taken in the last few months. He spoke a straightforward business language that was understood and appreciated. Despite reluctance to expose their own domestic market to foreign competition, designating more than three times as many QIZs was a clear sign of US encouragement – and Egypt can use all the encouragement it can get.

It should be stressed that the access provided under QIZ is not limited to textiles alone, but to any goods manufactured in the designated zones. Although Egypt’s textile industry is positioned for the greatest gains, the seven QIZs encompass manufacturers of a broad range of products that may now be exported to the US without quota or duties: electronics, furniture, plastics, leather goods, etc. The QIZ agreement, however controversial, may offer Egypt its best and only hope, at this time, to gain a foothold in a $11 trillion market. The QIZ provides the opportunity to substantially increase exports along with the inflow of foreign currency, to attract technology transfer and, above all, to create employment. At the heart of this decision lies Egypt’s need to become an export-led economy, to find 800,000 new jobs a year and to increase its growth rate to 6-7 percent annually.

Controversy in response to the announcement of the QIZ agreement was expected. What was surprising, and, in my opinion, most significant, were the complaints from manufacturers operating in zones excluded from the agreement. They know that QIZ opens the playing field and they want in. They also know that the conditions facing the qualifiers, amongst them geographical location within the designated zones and 11.7-percent Israeli content, are nothing compared to those Egypt would have to meet for an FTA with America. QIZ is therefore the most feasible and expedient solution to the dilemma facing Egyptian manufacturers, especially in the textile sector. Without it, an industry with investments valued at £E 15 billion, employing over a million workers, is imperiled, due to foreign competitors’ ability to undercut our prices and, in many cases, the advantages they enjoy as a result of FTAs.

Egypt is surrounded by countries holding FTAs. Oman and the UAE will be added to a list that already includes Morocco, Jordan, Israel, Palestine and Bahrain; from Chile to Singapore, exporters are competing for US customers. Although an FTA and the QIZ are two entirely different matters, the experience of Jordan offers an example of the impact the latter can have on industry: their exports jumped from $26 million in pre-QIZ 1998, to $950 million in 2004. Indeed, QIZ offers advantages when compared to an FTA in that it does not require the reciprocity demanded by FTAs. In other words, Egypt can export its QIZ manufactured goods freely to the US market without opening its own market to US products. This is what will give Egypt an all-too-necessary edge.

Now that the door to deeper trade relations between the US and Egypt is beginning to reopen, Egypt’s continued commitment to reform could in time lead to negotiations for an FTA, which would level the playing field for the industrial areas excluded from the present QIZ agreement. Meanwhile, the output of the existing zones can be maximized and the zones themselves expanded; if successful, additional QIZ’s remain an option. For now, Egypt’s seven QIZs and the potential they represent are the result of hard, smart negotiations by the new government in partnership with the private sector that has one compelling aim in mind: providing a better quality of life for all Egyptians.

Taher S. Helmy
President, AmCham Egypt

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