The Challenge of Implementing the Overlapping Regional Trade Agreements in Egypt

Beside its membership (1995) in the World Trade Organization (WTO), Egypt joined Regional Trade Agreements (RTAs) such as the Greater Arab Free Trade Area (GAFTA) in 1997, the Common Market for Eastern and Southern Africa (COMESA) in 1998, the European-Mediterranean Partnership Agreement (Euro-Med) in 2001 and the Aghadir Agreement in 2004. The study attempts to recognize the gap between the implementation plans and the real implementation of the Egyptian RTAs; to identify the economic potential of these RTAs; to find out the impact of institutional factors on the potential implementation of the RTAs; to identify the institutional factors behind the weak/delayed implementation; and to assess the applicability of the complex Rules of Origin (RoO) of the overlapping RTAs. The main results that the study demonstrates are the fact that the delayed implementation of the Egyptian RTAs cannot really be referred to organized lobbies or to certain ministries who would officially object the RTAs but rather to the missing awareness of the potential benefits of the RTAs, the weak institutions, the low incentives and - to a lesser extent - the overlapping RoO. GAFTA and COMESA can have a very high potential concerning the static as well as the dynamic effects, since there is still a huge unutilized space for investment stimulation, increased competition and economies of scale within both RTAs as compared to the Agreement with the European Union (EU) countries. The institutional quality has a positive impact on trade flows, and hence, on the potential implementation of the Egyptian RTAs. Although the RoO can indeed be regarded as a Non-Tariff Barrier (NTB) for Egypt as a common country in Euro-Med, COMESA and GAFTA, most of the inputs that are used in the Egyptian products originate in Egypt, in the EU or in countries other than GAFTA or COMESA. Therefore, the RoO problems that Egypt faces when exporting to countries of Euro-Med are far less than exporting to countries of the two other RTAs. The study suggests improving the institutions deeply rooted in the economies of Egypt and the GAFTA and COMESA countries in general; strengthening the linkages between the countries of the different RTAs through better networking systems; fulfilling deep integration by harmonizing the domestic policies of the different RTA member countries; mobilizing the Egyptian investors for investing in freight companies in order to contribute in solving the transportation problems; radically solving the enormous bureaucracy and red tap obstacles; making use of the financial and technical assistance program offered by the EU in the frame of Euro-Med; overcoming the rigidities in the Egyptian economic system by introducing more transparent exchange rates, export subsidies towards higher quality products, and a tax system that encourages the production and exportation; diversifying and specializing within the Arab and African products; and unifying the GAFTA and COMESA RoO such that they comply with the Euro-Med RoO which are based on more detailed, concrete and clear tariff line definitions.