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Deepening UK ties

Egypt should vigorously pursue a free trade agreement with post-Brexit Britain, both to maintain preferential bilateral trade relations and strengthen its position in Africa

Magda Shaheen , Thursday 23 Apr 2020
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At no time should the United Kingdom regret Brexit as its two largest trading partners, the European Union and the United States, are courting her and stand ready to take thee for better or for worse. The truth is that the EU will never leave the UK in the wilderness. The former is even willing against all odds and contrary to the conviction of Boris Johnson to extend the 2020 deadline on withdrawal negotiations for an extra two-year period. The Trump administration makes similar courteous attempts to lure the UK in sealing a free trade agreement, as it believes the UK could serve as gateway to Europe. 

Today, the UK is in a challenging situation having to choose between the two giants. Failure to reach an agreement with the European Union will have far-reaching negative repercussions on the British economy, as nearly 50 per cent of UK exports go to European markets, which makes reaching a preferential agreement with the EU indispensable. On a different note, the UK does not hide its interest to conclude a comprehensive free trade agreement with the US, because this means an open market for its goods and services also to Canada and Mexico, which form with the US a broad free trade agreement (USMCA). Furthermore, in light of the outbreak of the trade war between the US and China in the summer of 2018, Mexico is about to become a potential alternative to China and a likely destination for American companies. The UK’s attachment to the US camp means its assimilation into new production chains to compensate potential losses in European value chains.

It is not easy for the UK to win over both of these partners, as they are often in stark contrast to one another. The sharp disparities and inconsistencies between the EU and the US will force the UK eventually to choose one over the other. The two differ in laws, standards and rules, which are even in some instances inconsistent with one another. Trade disputes between the two giants are multiple in front of the World Trade Organisation (WTO) dispute mechanism. The latest of these conflicts started recently by France aimed at imposing a tax on the profits of giant technology companies like Google and Amazon. Such an attempt forced the US into threatening to retaliate in turn by imposing high tariffs on French wines. Moreover, the two differ in the levels of ​​protecting the privacy of Internet users and personal data. As it is becoming more conservative, the EU raises the echelon of protection. This will force companies focused on personal data, such as Google and Facebook, to change their business models in the future, a trajectory they dread taking. 

These problems and others are minor when juxtaposed with the problem of genetically modified food. While the European consumer continues to refuse to import or market such foods, the US does not distinguish between the quality of genetically modified and unmodified food, as the former is widely distributed on the shelves of American supermarkets. The US considers the rejection of the EU — based on the precautionary principle — as an unjustified barrier without scientific evidence. The precautionary principle is inconsistent with the rules of the WTO, which stipulates the use of technical rules based on valid scientific evidence and not based on the principle of precaution. 

Given the UK’s need for both trading partners, the challenge to the British prime minister in manoeuvering between the EU and the US is formidable. He must prove his ability to obtain the best deal from both partners, which is not easy. If together with the EU he agrees to extend the withdrawal negotiation period to secure a balanced deal, this will hinder the conclusion of an FTA with the US, which means the UK will lose the balancing “Trump card” to mitigate the repercussions of its exit from the EU and the ensuing possible disadvantages. Furthermore, the EU will stand in the face of any manipulation by the UK prime minister and will not tolerate his endeavours to converge with the US at the expense of the union and its member states.

Alternatively, while the UK is attracting the interest of both giants as well as many others, having signed to date over 40 free trade agreements, Egypt seems indifferent to the UK’s potentials as a self-determining and autonomous state. While this seems understandable today, as countries turn their full attention to fighting Covid-19, Egypt is not among the first countries to have signed an FTA with the UK when the time was more propitious and the UK approached Egypt to sign an agreement. The agreements between the UK and its partners aim at maintaining preferential treatment and ensure smooth sailing and continuity of trade relations. While grappling with its agreement with the EU, the UK cannot alter, in the transitional phase, the terms of the agreements with its partners from the ones applied within the EU. This will only be possible after the transitional period expires, whether in a year or three, if extended after January 2021. 

The million-dollar question is why Egypt should be interested in signing swiftly an agreement with the UK. British investments in Egypt total around $5.4 billion, which represents 41 per cent of total foreign direct investment inflows, meaning the UK ranks first globally in terms of FDI in Egypt. Furthermore, trade exchange between Egypt and the UK stands at over $3 billion yearly, facilitated largely by the EU Association Agreement with Egypt. If Egypt does not sign an agreement with the UK, WTO regulations will apply, granting Egypt the treatment of a most favoured nation. Egypt will lose its preferential treatment and will have to pay tariffs on its exports to the UK. 

Acknowledging mutually beneficial relations between the two countries, Egypt and the UK must expedite the signing and ratification of an FTA, if the former wants to extract the maximum benefit from its relation with the UK and ensure continuity of trade between the two countries on the same preferential grounds prevailing between Egypt and the EU. Today’s agreement with the UK will be confined to trade in goods; however, we must anticipate in light of the increasing importance of trade in services that we will eventually negotiate a full-fledged agreement after the transitional period. It is of utmost importance to start promptly closer cooperation with the UK to boost our services sector, thus enabling us to enter African markets from a position of strength within the framework of the African Continental Free Trade Agreement (AfCFTA). 

Egypt should follow the lead of other African countries, which were unhesitant to sign FTAs with the UK, such as Morocco and South Africa, to lay the groundwork for trilateral cooperation between Egypt, the UK and Africa. This falls jointly within the scope of the two governments’ policies towards Africa. The UK can be instrumental in supporting and developing the necessary infrastructure for manufacturers and investors. Egypt should lure British manufactures to cooperate with it to penetrate new African markets and compensate for the possible loss of EU markets. Egypt should attract the UK as a leading economy after Brexit, so that the UK continues to invest in Egypt and accedes jointly in African markets, in order to benefit from AfCFTA.


The writer is former assistant foreign minister for international economic affairs.

 

*A version of this article appears in print in the  23 April, 2020 edition of Al-Ahram Weekly

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