Egypt urges closer ties with EU for Arab states

CB018560Arab states have much to gain from their European neighbours and vice versa, but the emergence of China and Russia offer new opportunities.Egypt turned a page in its relations with the EU in 2007.
With the signing of the European Neighbourhood Policy (ENP) action plan, Cairo committed to a deeper level of political, economic and social co-operation with Europe, based on common values and objectives. We have agreed to join the EU in promoting stability, prosperity and good governance, and to work for the creation of a free trade area in the Mediterranean basin by 2010.
But now, after many rounds of discussion and on the 50th anniversary of the EU, both parties must ask themselves a basic question: is the ENP the most relevant response to the common challenges that face our two regions going forward? Is it the most effective response to shared problems such as terrorism or climate change? More importantly, will the promise of closer integration with Europe continue to have the same pull on the ‘neighbourhood’ it does today, as new players such as China and Russia court the region with aid, trade and investment?

The greatest pressures that will face Europe over the next 50 years will come from sources outside the union rather than internal ones. The neighbourhood policy tacitly recognises this fact by setting out a framework for deeper co-operation with Europe’s neighbours in the Mediterranean basin. By offering economic incentives in return for co-operation on political, economic, security and technical fronts, the policy seeks to limit the impact on the EU of the effects of conflict, crime and migration – spillovers from a troubled neighbourhood.

That Egypt should sign up for such closer co-operation with the EU is of course natural. Egypt is Europe’s longstanding ally in the region. Today, Europe is Egypt’s largest trading partner, with total trade standing at almost Eur 12,000 million ($16,000 million) in 2006.

Europe is also a significant foreign direct investor in Egypt, with more than £E 22,000 million ($3,860 million) worth of investments in 2006. Under an association agreement with Europe that came into force in 2004 (a forerunner of the ENP action plan), bilateral trade in industrial products is being fully liberalised. Active negotiations are under way to liberalise trade in agricultural produce, critical to Egypt’s exporters, as well as services.

The benefits to Arab states of such economic integration with Europe in terms of jobs, investment and technology transfer are tangible. Trade with Europe is an essential catalyst for economic liberalisation at home: the prospect of access to European export markets acts as an incentive to local industry to try to meet EU standards.

Our ties with Europe are also an asset in Egypt’s efforts to market itself to foreign direct investors. Egypt’s proximity to Europe and our strong economic ties are increasingly persuading investors to relocate their production base and move their operations closer to European customers. Over the past six months,

100 Turkish companies have visited Egypt to begin establishing factories on the Mediterranean coastline from which to export to the EU. A Russian industrial zone targeting light industry exports to global markets including Europe will be open in May. Another project is under way, with German investment, to create the first hub for automotive components to supply Europe’s largest car manufacturers. However, it is worth noting that Egypt and its regional peers have also been boosting economic ties with new partners such as China, Russia and even Kazakhstan.

Today, Middle East companies are as determined as European ones to take full advantage of the opportunities that markets such as China can offer. Egypt and China in 2006 signed a co-operation agreement to boost bilateral trade to $5,000 million by 2010, compared with about $3,100 million today. This includes plans to build the first dedicated industrial zone for Chinese manufacturers in the country. If we stay this course, China should overtake the US to become Egypt’s largest single trading partner over the next five to seven years – not by political design but through simple market economics.

So, when it comes to implementing the ENP, all parties should bear in mind that the world moved on while we were negotiating. With the rise of inter-emerging market investments, Europe’s neighbourhood today has more options in terms of trade and investment than it did just five years ago. This means that the carrots and sticks offered by the EU must also evolve to keep pace with this reality. Closer economic integration with Europe may not continue to be a sufficient incentive on its own.

by Rachid Mohamed Rachid is Egypt’s Trade & Industry Minister

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