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fta opens new trade routes to the bosphorous
by eman wahby
it was eight long years in the making, and at times
looking pretty unlikely, but on december 27 egypt and turkey signed
a free trade agreement (fta) that aims at strengthening bilateral
trade and investment ties and allows the two regional giants to
benefit from each other’s potential markets. the agreement
also aims at further strengthening the barcelona process, a european
union initiative that envisions a free trade area comprising the
countries of the euro-mediterranean basin by the year 2010.
egyptian minister of trade and industry rachid mohamed rachid and
the turkish state minister, kursad tuzmen, signed the historic accord
on behalf of their governments. in a press conference on the eve
of the signing, rachid told reporters that he expected the fta to
boost trade and investment ties between the two countries. “the
bilateral trade volume reached $1 billion in 2005, but we hope this
figure will see a threefold increase in the coming few years.”
certainly there’s no shortage of opportunities. turkey’s
economy has been growing steadily at 8-10 percent a year, ranking
among the top 20 countries in terms of growth. it could get a further
boost if approved for entry into the 25-member european union.
the country ranks as egypt’s sixth largest trading partner.
exports to turkey reached $254 million in 2004, while imports were
reported at $471 million. key exports are crude oil, agricultural
products, metal products and chemicals, while major imports are
machinery, foods products, textiles and wood products. free trade
will help increase trade volumes by reducing friction at borders
and ensuring fair competition.
rachid is optimistic. “we have already experienced a surge
in trade and investment in anticipation of this trade agreement
and the business communities in both countries are extremely bullish
on the prospects,” he said. “we also hope to see a big
amount of joint investments between the two countries that would
create more job opportunities.”
turkish businessmen are already lining up, tuzmen assured. he said
turkish investments in egypt currently stand at $600 million, but
projects these investments will reach $2 billion once the fta comes
into effect. the egyptian and turkish parliaments are expected to
ratify the agreement later this year.
the increased investment should also encourage turkish banks to
create a presence in egypt, he said. “with the increased turkish
investments and bilateral relations, the turkish private banks would
be encouraged to open branches in egypt.”
prior to the signing of the fta, cairo and ankara were already bound
by a number of bilateral accords, such as those outlining measures
to prevent double taxation, encourage joint investments, and enhance
economic and technical cooperation. “with the fta, the legal
framework for economic and commercial relations with egypt will
be completed,” tuzmen said.
the new agreement takes the model of the egypt-eu association agreement,
which outlines the gradual liberalization of bilateral trade in
agriculture, industrial products and services. rachid pointed out
that one of the fta’s major benefits is its “accumulation
of origin” rule, which could help reduce the cost of components
in egyptian manufactured goods. “by allowing for the accumulation
of origin between our two countries, the agreement gives both our
economies a deeper source of inputs,” he said. “this means
that a factory in egypt can import inputs from turkey, incorporate
these into its own products, and export these duty-free to europe
under egypt’s association agreement with the eu. the same applies
to turkish companies, and this will create all-important avenues
for cross-investment.”
according to a report prepared by egypt’s ministry of trade
& industry (mti, formerly the ministry of foreign trade &
industry), egypt and turkey will gradually phase out custom duties
and other tariffs on each other’s industrial products over
a period of 12 years. the transitional period is intended to give
local industries, particularly in egypt, a chance to adjust to the
new trading regime. “this will allow the egyptian market to
gradually absorb the turkish imports in a way that would not hurt
the national industry,” the report said.
tariffs on turkish imports have been categorized in four groups
modeled on the four “lists” stipulated under the eu association
agreement, and will be phased out at different rates. the first
group includes raw materials and machinery; the second group includes
intermediate goods such as carbon, paper and glass fibers; the third
group comprises consumer products such as marble, textiles, ready-made
garments and electrical appliances; and the fourth group includes
cars and their components.
the two sides have also agreed to progressively establish greater
liberalization of trade in agricultural products, processed agricultural
goods and fishery products of mutual interest. the parties exchanged
concessions through quotas on commodities. for turkey, commodities
of particular interest include hazelnuts and edible oils. egypt,
meanwhile, received concessions on its exports of rice, fish, vegetables
and fruits.
the local business community is divided over the benefits of the
egypt-turkey fta. some businesspeople believe the agreement will
open new opportunities, while others fear it could threaten national
industries. egyptian electrical appliance manufacturers, for instance,
argue that allowing turkish products to penetrate the local market
unencumbered by tariffs bodes badly for the future of their industry.
“the prices of turkish electrical appliances are already competitive
in the local market even though they are currently subject to custom
duties,” said mohamed fouad, export manager at olympic group,
a manufacturer of electrical home appliances. “so, what’s
going to happen when tariffs are slashed on turkish imported electrical
appliances?”
meanwhile, salah al-hadary, secretary-general of the egyptian car
manufacturers association (ecma), believes the government granted
turkey too many concessions. “although turkey is not yet a
member of the european union, i see it was granted preferential
treatment with regard to quotas and tariff cuts,” he said.
yet despite his reservations about the trade deal with turkey, al-hadary
nonetheless agrees that the fta will help lure turkish investments
into the local market. “undoubtedly, there will be more investment
projects with turkish partners pumping investments into the local
car feeding industry. our factories could then start exporting to
turkey, which has easy access to european markets.”
“with any trade agreement there are winners and losers,”
says ahmed ghoneim, assistant professor at the faculty of economics
and political science at cairo university. ghoneim describes himself
as a former opponent to the fta with turkey, but says the eu’s
decision to open accession talks with turkey changed his perspective,
as it seems inevitable that turkey will eventually benefit from
the trade liberalization outlined in the egypt-eu association agreement.
“sooner or later, they will have an access to the local market,
so it’s better to secure a good deal now,” he explained.
mostafa zaki, head of the importers’ chamber at cairo chamber
of commerce, agrees. he says there are inherent benefits to competing
with turkish imports now, as opposed to later. “trade is being
liberalized everywhere and we cannot continue to keep the old protective
measures against imports from around the world in order to protect
our industry... when the market opens up and tariffs are slashed
on turkish imports, the national industry has no way out but to
improve its competitiveness in order to survive the fierce competition.”
since egypt enjoys the advantage of qualified and inexpensive labor,
the fta should help to lure more turkish investment into the egyptian
market. “when turkey gets admitted to the eu, it will face
the dilemma of expensive labor. thus, they can start setting up
investments in egypt and the two countries would benefit,”
ghoneim explains. “for instance, in the textile industry, we
will benefit from their cheap yearn and they will benefit from our
cheap labor force.”
according to official figures, egypt’s textile exports to turkey
reached $193.5 million in 2003, compared to imports from turkey
valued at $350 million. bassem sultan, vice president of the garment
commodity council, says the new fta could quickly boost exports
on both sides because bilateral trade agreements “provide immediate
access, unlike the wto agreement, under which everything is phased
in and out. these agreements are usually implemented immediately.”
he says the speed of implementation is one reason why signing a
free trade agreement with a country like turkey is important. “yes,
their products will have access to our market, but we will have
access to theirs.”
additional reporting by réhab el-bakry
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