The challenge of multilateralism

Waleed Khalil Rasromani
8 Min Read

Egypt s future in light of the WTO stalemate

CAIRO: The Doha Round of the World Trade Organization (WTO) kicked off in Qatar five years ago in hopes of bridging the gap between industrialized nations and emerging economies.

Having already given some concessions on tariffs for goods in previous negotiations, and with industrialized nations led by the United States keen to extend trade liberalization to services, developing countries sought to put an end to the long practice of farm subsidies in the U.S. and Europe that left them unable to compete in the global agricultural market.

But what began as a dispute between developing and developed countries ended with a seemingly unbridgeable gap amongst developed countries themselves.

The U.S. refused to budge on farm subsidies unless the European Union followed suit. While the latter was willing to make some compromise on its massive support for agriculture, European concessions didn t go far enough for U.S. negotiators.

The EU spends nearly ?40 billion (LE 290 billion), half of its budget, on its Common Agricultural Policy to support its farmers. It agreed to eliminate explicit export subsidies, to reduce trade-distorting farm support by 75 percent and to cut its tariffs by 50 percent, according to EU Trade Commissioner Peter Mandelsen.

However, the EU excluded certain sensitive products from this formulation, a provision that other countries feared may make Europe s offer ineffective.

All this led to the suspension of negotiations by WTO Director General Pascal Lamy following the failure of discussions on Jul. 23 between six of the organization s major members, Australia, Brazil, the EU, India, Japan and the U.S.

“We have missed a very important opportunity to show that multilateralism works, said Lamy in a press conference following a broader meeting with negotiators the next day. “The feeling of frustration, regret and impatience was unanimously expressed by developing countries this afternoon.

All parties are now in the midst of a cool-off to reflect and try to recover some of the common ground that had been achieved in the past five years.

These achievements are threatened because decisions made in previous ministerial meetings during the Doha Round, including last year s deal on cotton, are subject to the final conclusion of the round.

It s all or nothing, says economist Samir Radwan, managing director of the Economic Research Forum.

Egypt s cotton industry stands to gain substantially from the decisions of the WTO s last ministerial meeting in Hong Kong, when developed countries agreed to end all export subsidies for cotton by the end of 2006 and other agricultural subsidies by the conditional deadline of 2013.

The agreement on cotton is particularly relevant for Egypt, where cotton cultivation and the related textile industry employ over one million people.

Egypt already has significant access to the European market through it Association Agreement with the EU, and Europe represents approximately 40 percent Egypt s total trade.

It s access to the U.S. market, however, is restricted unless it falls within the framework of the tripartite Qualified Industrial Zones (QIZ) agreement, which allows Egyptian goods tariff-free access to the U.S. provided they contain a minimum of 11.7 percent as inputs from Israel.

The loss [from the breakdown of talks] is in getting access to the U.S. market, says Radwan. The EU is currently our main trading partner, but there is great potential with the U.S.

In the absence of progress on the multilateral front, Egypt s interests lie in bilateral agreements and in trading blocs.

Although the U.S. administration pulled out of free trade talks with Egypt earlier this year, there remains room for expanding exports under QIZ and Egyptian businesses are seeking to reduce the minimum required proportion of Israeli inputs to accommodate for this expansion.

Deepening European ties also still represents a great opportunity, but the most significant development on this front, the Action Plan under the EU Neighborhood Policy, has been hampered over political differences. The agreement was expected to be finalized in June but diplomats on both sides failed to reach common ground over the wording of human rights commitments and weapons of mass destruction.

Progress on the Action Plan is now overshadowed by diplomatic efforts to diffuse the Israeli-Lebanese crisis.

The other trading blocs in which Egypt participates are the Greater Arab Free Trade Agreement (GAFTA) and the Common Market for Eastern and Southern Africa (COMESA).

The prospects for GAFTA are perhaps demonstrated by the latest meeting of Arab trade ministers in Cairo recently. Twenty ministers met last month to elect the new leadership of the Arab Industrial Development and Mining Organization, an arm of the Arab League that is described by the organization s outgoing Director-General Talaat Ben Dafer as an important body in the implementation of GAFTA.

The ministers elected a new director-general and deputy director-general after three hours of debate, but when asked of the names of the successful candidates immediately after the meeting, Syrian Minister of Industry Fuad Issa Aljouny who presided over the meeting could not remember and had to read them from a piece of paper. Aljouny also claimed ignorance of Egyptian complaints regarding Syria s highly restrictive import requirements for certain agricultural goods.

Aljouny s comments and actions demonstrate the lack of enthusiasm for greater regional trade cooperation in other Arab countries, regardless of the efforts of Minister of Trade and Industry Rachid Mohamed Rachid.

COMESA, on the other hand, is constrained by issues relating to infrastructure such as the inadequacy of transport connections between member states.

But another bilateral trade partner with great potential may be further east. Chinese Premier Wen Jiabao signed agreements with Egypt on energy, trade and investment during his visit to the country in July. Jiabao s visit reflects China s increasing hunger for energy resources and its warming relations with the Middle East.

The stalemate in the Doha Round demonstrates the challenge of decision-making by consensus. U.S. and EU negotiators are unlikely to relax their positions unless they can prove that reducing subsidies will result in increased export opportunities to their farming constituencies. They have less than a year to find a way to accomplish this, because U.S. President George Bush s authority to negotiate trade agreements with minimal interference from legislators ends in mid-2007; thereafter the dynamics of negotiations may change significantly.

Until WTO negotiations resume, the prospect for Egyptian exports, as with most other countries, lies in bilateral reduction of trade barriers and in certain trading blocs.

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