CAIRO: Egypt and Turkey signed a free trade agreement last December, which follows years of negotiations resulting in a series of product lists and tariff reduction timetables. Emre Öztelli, commercial counselor at the Turkish Embassy, provides insight into the negotiation process and helps put the agreement into perspective with long-term trade developments in an interview with The Daily Star Egypt.
Öztelli arrived in Egypt recently after many years at the Ministry of Trade and Industry in Turkey. In his previous post, he was directly involved in negotiating the free trade agreement with Egypt.
He explains that the Turkish government has been keen to pursue the agreement for several years. Discussions first began in 1996 and six rounds of negotiations were necessary before the agreement was finalized.
The defining element of the agreement is the long transition period for Egypt. While the Turkish market will become tariff-free immediately for most Egyptian products, Egyptian tariffs on Turkish goods will reduce gradually over a period of 15 years.
Turkey accepted this asymmetric arrangement, according to Öztelli, because of the disparity in the size and level of industrialization of the two economies. Although Turkey and Egypt have roughly the same number of inhabitants, Turkey s gross domestic product is 63 percent larger than Egypt s.
The agreement therefore initially provides protection to both raw materials and manufactured products. This dual protection is necessary to effectively safeguard Egyptian industrial production.
However, tariffs on raw materials will be the first to go after a four-year transition period. These include chemicals, petroleum products and ceramics.
After another five years the Egyptian duties on intermediate goods, semi-processed materials used in the production of a final good, will be abolished.
Tariffs on final products will be reduced in two stages. After 12 years, custom duties on all products with the exception of passenger motor vehicles will be eliminated. The passenger automobile sector will have a further three years of breathing space before duties are abolished and head-to-head competition with Turkish car manufacturers will begin.
By 2020, the stage will therefore be set for open trade between the two countries, with some exceptions. Egypt will continue to impose duties on 27 agricultural and food products, including fish, pasta, bread and certain fruits and vegetables. Turkey, in turn, will also impose duties on 17 agricultural and food products.
Öztelli explains that, with free trade, capital will flow to the country with higher rates of profit. He expects Turkish companies to increase their investment in Egypt due to the latter s lower energy and labor costs. Turkish companies currently invest some $600 million in Egypt.
He also anticipates that the level of trade will increase substantially. Trade volume between the two countries was a modest $948 million last year, with exports to Turkey of $263 million and imports of $686 million. Öztelli expects the total volume of trade to reach $1.5 billion this year and $3 billion next year, and to eventually stabilize at an equilibrium in excess of $5 billion.
Bilateral trade agreements such as this have gained importance in light of the sluggish progress of World Trade Organization (WTO) negotiations. Öztelli explains that, despite a number of declarations, the WTO has not actually implemented any reductions on tariffs for more than a decade. Regional integration through bilateral agreements, which complements the process of globalization, has therefore surpassed the pace of multilateral initiatives such as the WTO.
The agreement between Turkey and Egypt is part of the Euro-Mediterranean initiative which seeks to encourage trade between the northern and southern shores of the Mediterranean Sea. Turkey has already signed free trade agreements with Israel, Jordan, Syria, Tunisia, Morocco and the European Union (EU) in support of this initiative.
Egypt has also signed an Association Agreement with the EU that provides for technical cooperation in trade-related areas. Trade ties will be intensified, however, once an action plan is signed between Egypt and the EU within the framework of the EU s Neighborhood Policy. This policy eases EU trade restrictions in exchange for economic and political reform commitments, and negotiations for the policy s action plan are underway.
The free trade agreement between Turkey and Egypt has not yet been ratified by the legislatures in either country. Öztelli expects ratification to occur by October.
