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u.s.-egypt tug-of-war over wto textiles rules
local trade officials debated the legitimacy of a formal complaint
lodged by the us at the world trade organization (wto) in december
over egypt’s alleged breach of the organization’s rules
governing the global textiles trade.
on december 23, the office of us trade representative (ustr) robert
zoellick filed a grievance with the international, geneva-based
trade body over a series of prohibitive import duties issued by
cairo on textiles and apparel that it claims are “inconsistent
with egypt’s wto commitments.” “the government of
egypt,” read a ustr press release, “appears thus to have
effectively denied us exporters access to the egyptian market through
these duties.”
less than a month later, the front-page lead in all local newspapers
on january 22 spotlighted a presidential decree – announced
the day before – changing the entire tariff structure on clothing
imports, shaking the ground under the ustr’s complaint.
the tug-of-war over textiles rules has emerged as the latest test
of egypt’s readiness for a bilateral free trade agreement (fta)
with the us, an issue left to simmer on the government backburner
since the summer of 2003, when egypt was caught in the crossfire
between the us and the eu in a dispute over genetically modified
(gm) foods.
the us complaint caught local trade officials by surprise, given
america’s limited business interests in the local textiles
market. the us exported only $256,000 worth of clothing to egypt
in 2002 – negligible in comparison with the $492.21 million
of egyptian textiles, cotton and apparel exported stateside in the
same year.
additionally, there is little marketability for american and european
fashion labels in egypt, due to the low purchasing power of the
masses. those who can afford imported labels, it is generally assumed,
are already buying them from abroad.
seeing no commercial motive, therefore, local trade officials read
the complaint politically; as a response to cairo’s decision
to withdraw from a may 2002 us-led complaint over the eu’s
ban on the import of gm crops. the withdrawal of egypt – the
sole african party to the complaint – dealt a serious blow
to the us cause.
in a move that many regarded as retaliatory, zoellick contended
shortly afterward that egypt “has a long way to go” before
it could be considered a serious contender for an fta, blindsiding
those who had hoped trade negotiations would begin in 2004.
the ustr’s current complaint was also interpreted by some as
a shot over the bow. “i can relate all of these problems to
egypt’s decision to withdraw its support for the us challenge
on the ban of imports of genetically modified foods to the eu,”
said mostafa zaki, head of the importers association for the federation
of chambers of commerce.
zaki surmised that egypt’s withdrawal from the gm debate had
been the result of an inter-ministerial difference of opinion, with
the ministry of foreign trade supporting the us case and the foreign
affairs ministry taking the side of the eu, egypt’s largest
trading partner. us officials at the time harshly criticized egypt
for reversing its stance at the eleventh hour – an indication,
washington feared, that cairo might be a less than reliable fta
partner.
similar rhetoric surrounds the textiles dispute. according to a
us official well versed in the minutiae surrounding the current
complaint, the move was “not political,” but, rather,
centers on “egypt’s readiness to take on its international
obligations.” “the case is not an issue of trying to protect
us exports,” he said. “this, in our perspective, is an
issue of principle.”
the us official conceded that the case represented a litmus test
for egypt’s “ability to fulfill commitments it might make
to the us in future fta negotiations.” “egypt had very
clear commitments to fulfill to the wto, and it has not fulfilled
these commitments,” he said, adding that washington had expressed
its concerns about the textiles tariff scheme for two years before
formally lodging the complaint.
the case largely revolves around decree 469 of december 31, 2001
– a diktat that became famous for ending port said’s status
as a duty free port of entry, prompting the city’s merchants
to usher in the new year with angry riots.
on january 1, 2002, the government lifted its ban on the import
of clothing and textiles as part of the 1994 wto uruguay round treaty
on trade liberalization, according to which egypt was to reduce
tariffs over three years – to 40 percent on clothing and apparel
and 35 percent on textiles. these tariffs, the ustr stressed, should
be ad valorem, i.e. based on the value of the merchandise as stated
on the importer’s invoice.
but, in a bid to discourage importers from deluging the local market
with foreign ready-made garments, the government simultaneously
imposed specific, “fixed” tariffs on every article of
clothing entering the country. decree 469 spelled out the details,
listing 280 different tariff categories.
for example, an importer bringing in a two-piece woman’s suit
would have to pay an additional £e 1,400 tariff, while tariffs
for coats and jackets could run as high as £e 1,000 each.
as a result, overall clothing imports declined from $205 million
in 2000/01 to $145 million in 2001/02 and $82 million in 2002/03.
the ustr, meanwhile, argues that, when these specific duties are
converted into ad valorem equivalents, they end up “greatly
exceeding” the wto bound tariff rate that egypt agreed to.
per-item duties on clothing range from a low of 141 percent to a
high of 51,296 percent, the ustr press release stated.
according to alaa ezz, chief adviser to the chairman of the federation
of egyptian industries, egypt isn’t violating its wto obligations
at all. “legally speaking, there are no grounds for such a
complaint. we expect this will be rejected,” said ezz.
merits of the case aside, the sudden presidential decree emerged
at press time, canceling specific tariffs previously applied to
garments, and stipulating that – from now one – each article
of imported clothing would be subject only to a 40-percent ad valorem
tariff.
while none of the press reports linked the sweeping regulatory change
to the wto complaint, one observer close to the industry said the
government had, on paper at least, “effectively closed any
doors that could be opened in regard to that complaint.”
the potential local consequences, however, are expected to be enormous.
mohamed rabie, a textiles specialist, said that the textiles community
would likely rise in uproar against the decree – which will
threaten the competitiveness of the local industry since low-cost
ready-made garments from asia can more easily be dumped in egypt.
in the coming weeks, the government will be accused of “trying
to kill the industry slowly,” rabie contended.
zaki stressed that many countries – including the us –
have implemented strict measures to safeguard their labor-intensive
industries. egypt’s textiles industry, for example, is low-tech,
low-cost and employs some 25 percent of the country’s public
enterprise workforce.
safeguarding the american steel industry – another example
– against cheaper imports from the eu and japan has long been
an agenda-topper for the us administration. the eu and japan, who
argued that us producers are less efficient and therefore shouldn’t
receive special treatment, brought the us straight to the wto.
in january, the eu – along with others – sought wto authorization
to impose billions of dollars in retaliatory sanctions on us exports
after washington failed to repeal a law providing us producers in
certain strategic sectors, such as steel, with subsidies in contravention
of a wto-set december deadline. “the us has been in the press
a lot about its wto violations. they shouldn’t tell me to stop
protecting this critical industry.” zaki asserted. “we
must protect the ready-made clothing industry.”
even so, the us official fell back on the traditional argument that
hindering external competition causes the price-oriented egyptian
consumer to lose out, both on quality and price. the 40-percent
tariff egypt is entitled to under the wto – quite substantial
in and of itself – should offer enough protection for domestic
manufacturers, he said. “if [the domestic market] can’t
compete with tariffs that high, then you really have to rethink
your whole industry,” the us official asserted. steep tariffs
also “feed corruption,” he said, because clothes will
still be smuggled into the country illegally, costing egypt a good
deal of customs revenue.
when all is said and done, though, ezz insisted that the local textiles
market is “not worth this hassle.” pursuing the complaint,
he said, was a purely tactical move on the part of the us –
egypt simply called the bluff. “trade negotiations are like
a poker game. this case is just a bartering tool to have a card
up the american sleeve during any type of trade negotiations,”
ezz said
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local textiles buckle seatbelt in advance
of coming onslaught
the global textiles trade is bracing for a sea change next
year, when the rules of engagement will change irreversibly
with the dawn of a new era of economic ferocity – and
local producers might not be up to the challenge.
since 1974, industrialized countries have protected their
domestic textiles industries by imposing country-by-country
quotas on textiles imports under the multi-fiber agreement
(mfa).
but on january 1, 2005, the accord – which was rebranded
the wto agreement on textiles and clothing in 1994 –
will be completely phased out, subjecting the long-protected
textiles industry to the rules of an open market.
in 2003, local textiles exports soared with the more competitive
currency.
however, it was also the quota system that ensured egypt’s
global market share, as it placed restraints on the flood
of cheap clothing from china and india into developed markets.
local textiles officials, therefore, are readying themselves
for major losses to egypt’s traditional fraction of the
world market when the sluice gates open.
for example, mass producer china – which faced prohibitively
high restrictions under the mfa – “will engulf and
devour all of our quotas,” predicted alaa ezz, chief
adviser to the chairman of the federation of egyptian industries.
according to textiles expert mohamed rabie, local industry
must prepare for the stiff competition posed by less expensive
products from the far east and turkey, and the budding textiles
industries of syria and jordan.
“whether or not egypt is ready to comply with its wto
commitments, we will have to abide by all of the rules,”
rabie said.
egypt’s competitiveness, he added, will depend on the
enhancement of domestic production, lower labor costs, a guaranteed
supply of raw materials and proximity to lucrative markets.
“the train’s going to leave the station one way
or the other, in terms of the textiles trade in general,”
said one us official, who insists on the reform of the heavily
protected textiles sector. “egypt has a year to get its
house in order.”
he went on to suggest that the sector’s competitiveness
could be greatly enhanced by reducing tariffs on raw material
imports and modernizing textiles factories.
a presidential decree announced at press time noted that tariffs
on imported yarns and textiles machinery would be vastly reduced
– in a bid, according to the government, to make the
local industry more competitive.
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daliah merzaban
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