Friday, March 11, 2011

Trade, Not Aid

In all of the clamoring for how to support the cause of reforms in Egypt -- through everything from aspirational declarations of common values, to a dubious openness to dealing with the Muslim Brotherhood (nb: let’s at least agree it is not a secular organization), to targeted economic aid, “democracy-building” initiatives and debt relief packages -- what is the single biggest act that the United States can do? Close on a bilateral free trade agreement. It is not so much that other forms of assistance are not without merits (notwithstanding the largely misguided criticisms that are in vogue concerning USAID programs, USAID and other foreign aid programs have produced many real benefits in Egypt), but that a free trade agreement offers so much more.

The biggest threat to derailing the vision for a modern and developed Egypt is an economic one. The need for vast and rapid improvements in the quality of life for Egyptians is beyond debate, but how to achieve it is not. As questions about the religious-secular divide and constitutional reform dominate internal and external discourse on Egypt, the outcome of the battle over the orientation of the Egyptian economy will have the greatest impact on what kind of Egypt emerges from January 25.

The starting point is not looking good. Despite producing positive economic returns, endemic corruption, inept governance and the disjointed and slow pace of implementation of economic reforms have discredited capitalist principles for many Egyptians. Further, the self-defined “intelligentsia” of Egypt still clings to globally-discredited socialist ideas (even if Egypt’s economy was brought to its knees by the disastrous socialist experiment under Nasser’s tutelage). 

A free trade agreement with the United Statse will offer direction in this debate by providing “an incentive for that government to adopt a free-market economic philosophy.” Further, unlike the targeted benefits of foreign aid or debt relief, free trade offers many more people the opportunity to directly and indirectly benefit from access to the world’s biggest market, while simultaneously providing competitive disciplines to domestic industry in Egypt. Then there is the knock-on effect of a U.S. free trade offer pressuring the European Union, Egypt’s largest export market, to follow suit (and thereby reduce or remove the highly debilitating restrictions imposed by Europe on Egyptian exports, particularly on agricultural products). Heck, it might even help President Obama, in finally aligning himself over rejectionist Democrats beholden to union protectionism that has stalled U.S. trade policy throughout his presidency.

The idea of a free trade agreement between Egypt and the United States is not a new one, having been held up before on foreign policy bickering between past U.S. administrations and the Egyptian government. The Qualified Industrial Zones (QIZ) set up to encourage Egyptian-Israeli normalization provides a degree of favored market access for Egyptian exporters, and within the region, the United States already has free trade agreements in place with Israel, Jordan, Bahrain, Morocco and Oman.

Get it done.

Thanks for Sesame we want Wall Street


  1. Balasticman,

    nice informed post. I hope you keep running this blog and not abandon it soon.

    Regarding free trade, you should check out the Association Agreement, which is Egypt's free trade agreement with the EU. It is gradually being implemented. Just don't overestimate the benefits of free trade. Encouraging and developing the Egyptian domestic market should be more of a concern than encouraging foreign trade. There is little point on reducing customs on trade regarding food and produce when your trade balance is as negative as it currently is, especially when all food you export is the little quantities of fruits and organic vegetables exported.

    One shouldn't just open up the Egyptian market for foreign exports to conquer. Just check the scores of imported milk currently conquering egypt, at below Egyptian milk prices.

  2. Thanks for the comment. The Association Agreement is important, but still imposes significant restrictions on Egyptian exports (especially food exports -- the quantities of which are small precisely because of the Common Agricultural Policy linked restrictions, but also non-food exports coming from Egypt). The debate on free trade versus protection domestic industry is one that is well studied and documented, and this blog is a strong believer in free trade's multiplier effects on both a domestic and the world economy. Moreover, Egypt's market already is integrated with global investment, so notions of foreign "conquests" are a little out of place. Egypt's economic policy does not need to be export-based or biased given the size of its domestic market, but market access remains a key driver of its growth.