This section reviews Egypt’s efforts to establish a more open and outward-oriented trade regime as part of its market reform and growth strategy. Trade reform has proceeded sporadically since the mid-1980s but has gathered strength since early 1996. Building on the Uruguay Round of multilateral trade liberalization, Egypt has recently made important progress in reducing tariffs and eliminating import bans and is now focused on dismantling non-tariff barriers that are seen by market participants and analysts alike as perhaps the main impediment to a sustained expansion in non-oil exports. The forthcoming free-trade agreement with the EU should reinforce these reforms. Nonetheless, Egypt’s trade regime remains more closed compared with other fast-growing emerging economies. This suggests that there remains an untapped potential for trade liberalization to serve as a “launching pad” to a sustained higher growth path.
Overview
Egypt took a series of trade reforms from the mid-1980s to 1996 aimed at reducing tariff and nontariff restrictions and enhancing the transparency of the trade regime. High tariff rates were reduced, with the maximum rate cut from 120 percent prior to May 1991 to 70 percent in February 1994, and the dispersion of tariffs was also narrowed. The government eliminated a large number of quantitative restrictions (QRs) on imports, excluding those maintained for health and security reasons. Foreign exchange budgeting was eliminated and restrictions on private sector imports and exports of cotton were lifted. All export taxes were eliminated in late 1992, and the only remaining export nontariff barrier was a ban on exports of raw hides, which is scheduled to be removed in 1998. A variety of nontariff barriers that discriminated against foreign firms were eliminated and efforts made to reduce nontariff barriers and eliminate “red tape.”54 As a result, the average statutory tariff excluding import surcharges) was reduced by nearly 20 percentage points to 28 percent between 1989 and 1996, effective protection was reduced, and the production coverage of QRs declined from about 37 percent of agricultural and manufacturing output in 1991 to about 4 percent in 1996.
Despite this progress, Egypt’s trade system remained relatively restrictive. As of the middle of 1996, the general tariff schedule ranged from zero to 70 percent, substantially higher tariff rates applied to alcohol, tobacco, and automobiles, and import surcharges of 2–5 percent applied to all imports. Consequently, prior to the recent liberalization effort, Egypt’s tariff schedule was among the most restrictive in the region and significantly higher than the other emerging markets (Table 32). In addition, while import bans were substantially reduced during 1991–93 (remaining import bans on textiles and garments are estimated to cover less than 5 percent of tradable goods output), some were replaced by restrictive quality controls. Further, in the view of many traders, cumbersome customs procedures inhibited imports and, by discouraging foreign investment and the import of intermediate goods, ultimately had a serious negative effect on non-oil exports.
Weighted Average Tariff in Southern Mediterranean Countries and Other Regions
(In percent)
Indonesia, Korea. Macau, Malaysia, the Philippines, Thailand
Czech and Slovak Republics, Hungary, Poland, Romania.
Australia, Canada, European Union. Hong Kong SAR, Iceland, apart. New Zcihind. Singapore, Sweden.
Argentina, Brazil. Chile, Colombia, Jamaica, Mexico, Peru, Et Salvador, Uruguay Venezuela.
India, Sri Lanka.
Weighted Average Tariff in Southern Mediterranean Countries and Other Regions
(In percent)
| Weighted Average Tariff March 1996 | |
|---|---|
| Algeria (1992) | 21.6 |
| Egypt | 28 |
| Israel | 7.2 |
| Jordan | 19.8 |
| Lebanon | 24.2 |
| Morocco | 20.3 |
| Syrian Arab Republic | 17.2 |
| Tunisia | 31.7 |
| East Asia1 | 21.3 |
| Central Europe2 | 9.1 |
| High-income countries3 | 5.8 |
| Latin America4 | 14.1 |
| South Asia5 | 47.1 |
| Sub-Saharan Africa | 14.8 |
| Developing countries | 21.4 |
| World | 8.2 |
Indonesia, Korea. Macau, Malaysia, the Philippines, Thailand
Czech and Slovak Republics, Hungary, Poland, Romania.
Australia, Canada, European Union. Hong Kong SAR, Iceland, apart. New Zcihind. Singapore, Sweden.
Argentina, Brazil. Chile, Colombia, Jamaica, Mexico, Peru, Et Salvador, Uruguay Venezuela.
India, Sri Lanka.
Weighted Average Tariff in Southern Mediterranean Countries and Other Regions
(In percent)
| Weighted Average Tariff March 1996 | |
|---|---|
| Algeria (1992) | 21.6 |
| Egypt | 28 |
| Israel | 7.2 |
| Jordan | 19.8 |
| Lebanon | 24.2 |
| Morocco | 20.3 |
| Syrian Arab Republic | 17.2 |
| Tunisia | 31.7 |
| East Asia1 | 21.3 |
| Central Europe2 | 9.1 |
| High-income countries3 | 5.8 |
| Latin America4 | 14.1 |
| South Asia5 | 47.1 |
| Sub-Saharan Africa | 14.8 |
| Developing countries | 21.4 |
| World | 8.2 |
Indonesia, Korea. Macau, Malaysia, the Philippines, Thailand
Czech and Slovak Republics, Hungary, Poland, Romania.
Australia, Canada, European Union. Hong Kong SAR, Iceland, apart. New Zcihind. Singapore, Sweden.
Argentina, Brazil. Chile, Colombia, Jamaica, Mexico, Peru, Et Salvador, Uruguay Venezuela.
India, Sri Lanka.
As a consequence, looking over the period between the mid-1980s and 1996, it is clear that Egypt had not maximized the potential benefits from the liberalization of the trade regime and, consequently, in some respects was becoming less integrated in the world economy:
Egypt’s share of world exports had fallen over the period 1985–96, while regional competitors–Morocco and Tunisia to name two–did better at maintaining their market share (Figure 22). Also, Egypt’s share of world imports has fallen relatively steadily since the mid-1980s, countering the usual trend toward higher market share as developing countries industrialize and shift production toward investment and import-intensive production (Figure 23).
Further. Egypt’s market share in the key EU market declined from 1 percent in 1985 to 0.5 percent in 1995.
Trade to GDP totaled 62 percent during 1991–95 (Table 33), about equal to the MENA average and below trade shares for Jordan, Lebanon, Tunisia, and Israel (although above that for Morocco).
The ratios are somewhat better for traded services than merchandise trade, where–boosted by tourism–Egypt’s exports of services during the 1990s totaled 68 percent of exports of goods and services, well above the MENA average (Table 34).
Trade remains concentrated. As in much of the MENA area, exports are highly concentrated in mineral fuels: oil exports represent over half of merchandise exports while textile and clothing exports make up more than half of manufactured exports. Imports are mainly manufactured goods and food. The high concentration of Egypt’s trade, combined with the variability of international oil prices, contributed to volatility in Egypt’s terms of trade.
Share of World Exports
(In percent)
Source: IMF, Direction of Trade StatisticsShare of World Exports
(In percent)
Source: IMF, Direction of Trade StatisticsShare of World Exports
(In percent)
Source: IMF, Direction of Trade Statistics
Share of World Imports
(In percent)
Source: IMF, Direction of Trade StatisticsShare of World Imports
(In percent)
Source: IMF, Direction of Trade StatisticsShare of World Imports
(In percent)
Source: IMF, Direction of Trade StatisticsMerchandise and Service Trade in Selected MENA Countries
(In percent of COP)
Merchandise and Service Trade in Selected MENA Countries
(In percent of COP)
| Average | |||||
|---|---|---|---|---|---|
| 1976–80 | 1981–85 | 1986–90 | 1991–95 | 1996 | |
| Algeria | 63.6 | 53.9 | 32.9 | 50.7 | 55.1 |
| Egypt | 55.2 | 54.1 | 48.6 | 61.9 | 52.9 |
| Iran, Islamic Republic of | 54.0 | 28.1 | 31.7 | 48.2 | 32.0 |
| Israel | 85.6 | 82.0 | 81.9 | 77.1 | 77.1 |
| Jordan | 134.8 | 151.6 | 113.2 | 127.2 | 123.6 |
| Lebanon | 118.3 | 170.0 | 187.4 | 103.8 | 84.1 |
| Libya | 93.8 | 86.2 | 54.5 | 47.6 | 40.3 |
| Morocco | 48.9 | 54.7 | 50.3 | 55.8 | 55.8 |
| Sudan | 33.1 | 33.8 | 24.0 | 38.8 | 29.4 |
| Syrian Arab Republic | 58.8 | 38.9 | 25.8 | 62.9 | 67.5 |
| Tunisia | 69.8 | 81.2 | 81.2 | 86.7 | 84.7 |
| Yemen. Republic of | 56.3 | 43.2 | 39.5 | 35.6 | 98.9 |
| MENA | 84.2 | 72.8 | 60.1 | 65.6 | 66.0 |
Merchandise and Service Trade in Selected MENA Countries
(In percent of COP)
| Average | |||||
|---|---|---|---|---|---|
| 1976–80 | 1981–85 | 1986–90 | 1991–95 | 1996 | |
| Algeria | 63.6 | 53.9 | 32.9 | 50.7 | 55.1 |
| Egypt | 55.2 | 54.1 | 48.6 | 61.9 | 52.9 |
| Iran, Islamic Republic of | 54.0 | 28.1 | 31.7 | 48.2 | 32.0 |
| Israel | 85.6 | 82.0 | 81.9 | 77.1 | 77.1 |
| Jordan | 134.8 | 151.6 | 113.2 | 127.2 | 123.6 |
| Lebanon | 118.3 | 170.0 | 187.4 | 103.8 | 84.1 |
| Libya | 93.8 | 86.2 | 54.5 | 47.6 | 40.3 |
| Morocco | 48.9 | 54.7 | 50.3 | 55.8 | 55.8 |
| Sudan | 33.1 | 33.8 | 24.0 | 38.8 | 29.4 |
| Syrian Arab Republic | 58.8 | 38.9 | 25.8 | 62.9 | 67.5 |
| Tunisia | 69.8 | 81.2 | 81.2 | 86.7 | 84.7 |
| Yemen. Republic of | 56.3 | 43.2 | 39.5 | 35.6 | 98.9 |
| MENA | 84.2 | 72.8 | 60.1 | 65.6 | 66.0 |
MENA Region: Exports of Services
(In percent of total exports of goods and services)
MENA Region: Exports of Services
(In percent of total exports of goods and services)
| 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | |||
|---|---|---|---|---|---|---|---|---|
| All MENA countries | 19.4 | 19.9 | 20.7 | 20.2 | 20.5 | 19.6 | ||
| Oil exporting MENA countries | 12.9 | 11.8 | 12.7 | 10.9 | 11.4 | 10.9 | ||
| Of which | ||||||||
| Algeria | 3.7 | 5.4 | 7.2 | 6.2 | 5.4 | |||
| Libya | 0.9 | 3.2 | 1.7 | 4.1 | … | … | ||
| Non-oil exporting MENA countries | 40.1 | 43.2 | 41.7 | 40.8 | 40 | 40.1 | ||
| Of which | ||||||||
| Egypt | 67.4 | 67.4 | 68.5 | 70 | 67.2 | 68.4 | ||
| Israel | 34.8 | 36.2 | 33.5 | 32.2 | 34 | 33 | ||
| Jordan | 43.7 | 54.3 | 55.8 | 52.3 | 49.1 | 50.4 | ||
| Lebanon | 60.4 | 60.3 | 65.8 | 62.5 | 64.5 | 61.6 | ||
| Morocco | 31 | 39.1 | 30.7 | 28 | 22.5 | 25.1 | ||
| Sudan | 16.6 | 16.2 | 15.2 | 18.8 | 15.1 | 13.5 | ||
| Tunisia | 27.5 | 32.6 | 35.1 | 32.6 | 31.2 | 32.1 | ||
| Yemen, Republic of | 15.9 | 15.6 | 14.9 | 7.7 | 8.2 | 8.9 | ||
MENA Region: Exports of Services
(In percent of total exports of goods and services)
| 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | |||
|---|---|---|---|---|---|---|---|---|
| All MENA countries | 19.4 | 19.9 | 20.7 | 20.2 | 20.5 | 19.6 | ||
| Oil exporting MENA countries | 12.9 | 11.8 | 12.7 | 10.9 | 11.4 | 10.9 | ||
| Of which | ||||||||
| Algeria | 3.7 | 5.4 | 7.2 | 6.2 | 5.4 | |||
| Libya | 0.9 | 3.2 | 1.7 | 4.1 | … | … | ||
| Non-oil exporting MENA countries | 40.1 | 43.2 | 41.7 | 40.8 | 40 | 40.1 | ||
| Of which | ||||||||
| Egypt | 67.4 | 67.4 | 68.5 | 70 | 67.2 | 68.4 | ||
| Israel | 34.8 | 36.2 | 33.5 | 32.2 | 34 | 33 | ||
| Jordan | 43.7 | 54.3 | 55.8 | 52.3 | 49.1 | 50.4 | ||
| Lebanon | 60.4 | 60.3 | 65.8 | 62.5 | 64.5 | 61.6 | ||
| Morocco | 31 | 39.1 | 30.7 | 28 | 22.5 | 25.1 | ||
| Sudan | 16.6 | 16.2 | 15.2 | 18.8 | 15.1 | 13.5 | ||
| Tunisia | 27.5 | 32.6 | 35.1 | 32.6 | 31.2 | 32.1 | ||
| Yemen, Republic of | 15.9 | 15.6 | 14.9 | 7.7 | 8.2 | 8.9 | ||
To reinvigorate the reform effort, the government has moved to cut tariffs further, reducing the maximum rate to 50 percent in July 1997. Other high rates were reduced by 5 percent and the import surcharge was cut by 1 percent. Further cuts are planned in the period ahead, but the overall approach remains gradual and incremental, reflecting concerns that faster reform will worsen unemployment in the short run.
Reinvigorating the Momentum of Reform
The current reform effort that the authorities embarked on is based on spurring growth through greater export orientation and integration in a global economy. These benefits are well appreciated: a study of the effects of trade liberalization on the countries of the MENA region (Alonso-Gamo, Fennell, and Sakr, 1997, p. 1) noted that
… closer integration, specifically through trade reform, leads to a higher level of economic growth as a result of improved resource allocation and economic efficiency. Furthermore, by increasing competitiveness of domestic production–trade reform can enhance export prospects, leading to an improvement in the trade balance and the overall balance of payments position. Other spillover effects from trade–-higher productivity levels that stem from technology transfers from the industrial countries and the interaction between trade and the stock of foreign research and development capital–are also clear.
Egypt’s program of trade reform has three strands:
multilateral liberalization through the implementation of commitments made in the Uruguay Round;
bilateral trade liberalization with the EU through negotiation of a framework agreement, (negotiations are already far advanced); and
a comprehensive unilateral reform of the trade regime.
The authorities’ program aims at substantially reducing the restrictiveness of Egypt’s trade regime, mainly by eliminating the remaining import nontariff barriers and further tariff reductions.
Multilateral Liberalization Through the Uruguay Round
The Uruguay Round concluded in April 1994 provided for increased market access for industrial products; services and intellectual property were integrated into the multilateral framework while agriculture, textiles, and clothing were brought into the framework of multilateral rules. Also, the functioning of the world trade system was strengthened through improvements in rules on subsidies, on antidumping and countervailing actions, and through improved multilateral dispute settlement procedures. By requiring all countries to adhere to nearly all Uruguay Round agreements, thereby reducing the special dispensations offered to developing countries, the Round facilitated the increased integration of the multilateral trading system.
There is general agreement that the net effect of the Uruguay Round on Egypt is likely to be modest.55. The main impact of the Round, through changes in the trade regime and the external trading environment, is likely to be as follows:
Improved access to international markets is expected to increase exports driven largely by an increase in Egypt’s textile quotas. The Round will produce significant progress in removing nontariff measures facing Egypt–as well as other MENA exporters–especially in agriculture, and in textiles and clothing during the ten-year transition period provided for elimination of quotas.
Egypt’s commitment to “bindings”–not to raise the level of its tariffs above specified levels without consulting or compensating its trading partners, or both–provides greater predictability of trade policy and insurance against future reversal. Egypt bound 100 percent of its tariff lines in agriculture (as was required of all countries) and about 97 percent of its tariff lines in the industrial sector and has agreed to forgo other duties and charges. The bindings in December 1994 were already on average about 5 percentage points above applied rates, and the “water in the bound tariff” (the extent to which actual tariffs are below bindings, allowing room for future increases) has subsequently risen to above 10 percent. Nonetheless, Egypt’s Uruguay Round commitments led to some, albeit limited, incremental liberalization.56
Egypt, like all countries, committed to eliminate all quantitative restrictions on agriculture. Also, as part of the Uruguay Round agreement, Egypt has agreed to eliminate the import ban on textiles by January 1, 1998, and on clothing by January 1, 2001.
Although Egypt is a large net food importer, the impact of the Uruguay Round on its food import bill was expected to be minor, on account of the limited increase in food prices that was expected.
Elements of the Uruguay Round could have adverse consequences for Egypt, particularly in the short term, because the most-favored-nation tariff cuts incorporated in the Uruguay Round will reduce preference margins that Egypt has enjoyed with the EU.
Overall, the Uruguay Round is not expected to produce significant effects, except in the textile and clothing sectors. While Egypt did undertake important commitments to lock in its trade regime and render it more transparent by binding its entire tariff schedule, incremental liberalization was not significant, except for the elimination of import restrictions in poultry and textiles and clothing. Although bound rates are in general higher than applied rates, the tatter remain high in absolute terms and in comparison with several other developing countries. Imports are expected to increase modestly, mainly because of the liberalization commitments described above. But exports are expected to rise by a comparable amount, so that the net effect is likely to be quite small (Table 35). Fiscal effects are also estimated to be modest. The finding of little net effect has been largely confirmed by subsequent academic studies.
Summary Impact of the Uruguay Round in 2005
(In millions of 1993/94 U.S. dollars)
Based on the scenario with higher food price increases; in the alternative scenario imports would increase by only $4 million.
The export numbers are obtained from the results for the three largest markets extended to all OECD markets
Summary Impact of the Uruguay Round in 2005
(In millions of 1993/94 U.S. dollars)
| Effect | Magnitude | |||
|---|---|---|---|---|
| Balance of payments effects | ||||
| Increase in imports | 247 | |||
| Of which | ||||
| Liberalization | 220 | |||
| Higher food prices1 | 26 | |||
| Increase in exports | 240 | |||
| Of which2 | ||||
| Textiles quota expansion | 241 | |||
| Most-favored-nation tariff cuts | 4 | |||
| Preference erosion | -6 | |||
| Net effect | -7 | |||
| Fiscal effect | ||||
| Charge in revenue | -11 | |||
Based on the scenario with higher food price increases; in the alternative scenario imports would increase by only $4 million.
The export numbers are obtained from the results for the three largest markets extended to all OECD markets
Summary Impact of the Uruguay Round in 2005
(In millions of 1993/94 U.S. dollars)
| Effect | Magnitude | |||
|---|---|---|---|---|
| Balance of payments effects | ||||
| Increase in imports | 247 | |||
| Of which | ||||
| Liberalization | 220 | |||
| Higher food prices1 | 26 | |||
| Increase in exports | 240 | |||
| Of which2 | ||||
| Textiles quota expansion | 241 | |||
| Most-favored-nation tariff cuts | 4 | |||
| Preference erosion | -6 | |||
| Net effect | -7 | |||
| Fiscal effect | ||||
| Charge in revenue | -11 | |||
Based on the scenario with higher food price increases; in the alternative scenario imports would increase by only $4 million.
The export numbers are obtained from the results for the three largest markets extended to all OECD markets
The Egypt-EU Association Agreement: A Bilateral Approach to Opening Markets
Negotiations are close to conclusion on an association agreement between Egypt and the European Union.57 The framework agreement would further liberalize the Egyptian market: free trade in raw materials and intermediate capital goods within five years, expanded quotas in agriculture and textiles, and free trade in industrial goods by 2010. Most framework agreements follow a common structure or “template.” To date, in the Mediterranean basin, full association agreements have been signed with Israel, Morocco, Tunisia, and Jordan. It is expected that these agreements will be ratified by the 15 EU members by early 1998.
Agriculture has proven to be a critical area of contention in the negotiation. In a number of key areas—oranges, rice, and potatoes to name a few—constraints imposed by the common agricultural policy and considerations related to EU enlargement have been a stumbling block. In certain areas, Egypt (and other MEN A countries) had previously received de l’acto preferential treatment, and the association agreements, while normalizing trade, close some loopholes that had benefited the region. More generally, the Egyptians have sought to base quotas in agriculture to some extent on projected post liberalization trade flows rather than “traditional trade flows,” reflecting Egypt’s efforts to modernize and industrialize the agricultural sector and expand exports in nontraditional areas. A variety of additional issues, including labor rights and mobility, duty drawback, and rules of origin on key products (dyes in shirts–a traditional Egyptian product–do not count for origin purposes, while printing does), are also under discussion.
There are good reasons to believe that Europe will remain an important trading partner and that expanded market access through the agreement could play an important role in the Egyptian trade reform effort. Europe is a natural trading partner for Egypt and the potential for market growth is strong. Currently, Egypt has onlyMi of 1 percent of total EU imports; in most analysts’ views there is substantial room for improvement. Egypt’s relatively low wages suggest that it could be a natural assembler of consumer goods for the EU. In this regard, Egypt (and other countries in the region) seeks more generous cumulation rules for products produced in multiple countries.
Unilateral Trade Reform
In addition to negotiating the trade liberalization in bilateral and multilateral forums, Egypt has committed to a major market opening effort on a unilateral basis beginning in 1996. This effort codifies reforms agreed to elsewhere and also goes further to expand trade as part of the authorities’ growth-oriented strategy.
These measures will also reduce the reliance of the government on trade taxes with greater reliance on consumption based taxation. The major focus of unilateral trade reform is in the following areas:
Significant tariff reductions in the general maximum rate and a reduction in other high rates, in a number of steps between September 1996 and July 1998. The maximum rate was reduced to 50 percent, and other high rates reduced by 5 percent, on July 1, 1997.
A gradual reduction in the import surcharge. The higher rate surcharge was reduced from 4 percent to 3 percent on July 1, 1997; the lower rate remains at 2 percent,
Tariffs on automobiles were initially cut in October 1996, but other exemptions to the general tariff structure (e.g., alcohol and tobacco) are not scheduled to be eliminated in the immediate future.
The import ban on poultry was eliminated in July 1997 and replaced with an 80 percent tariff.
Egypt’s system of mandatory quality controls on imports is being reviewed. A high-level study of customs procedures and mandatory quality controls is nearly concluded, and procedures will be modified in late 1997 and early 1998 to eliminate restrictive features.
