VZCZCXRO3607
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHEG #1407/01 1331430
ZNR UUUUU ZZH
P 131430Z MAY 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 5154
INFO RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 CAIRO 001407 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
NEA FOR ELA 
USTR FOR SAUMS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAGR EG
SUBJECT: EU-EGYPTIAN TRADE REGIME COULD CREATE HURDLES FOR 
US EXPORTS 
 
REF: A. 2006 CAIRO 6894 
     ¶B. 2005 CAIRO 8937 
 
Sensitive but unclassified, not for internet distribution. 
 
¶1. (SBU) SUMMARY: Trade between Egypt and the European Union 
has increased dramatically during the last three years, 
thanks in part to lower trade barriers under Egypt's 
Association Agreement with the EU.  However, US-Egyptian 
trade has also expanded during that time and continues to 
grow robustly.  While Egyptian economic growth spurred by the 
increased trade will make Egypt a more lucrative market for 
US and EU exporters, US export growth could be constrained if 
Egypt moves under the association agreement to adopt 
standards more favorable to European products than US 
products.  END SUMMARY. 
 
------------------------------ 
Trade expanding with EU and US 
------------------------------ 
 
¶2.  (U) Egypt signed an Association Agreement with the 
European Union in 2001.  The trade provisions of the 
agreement entered into force Jan. 1, 2004, continuing 
duty-free access to the EU for Egyptian industrial exports 
and easing some restrictions on Egyptian agricultural 
products that compete with EU products.  The agreement 
offered EU exporters only gradually improved access to the 
Egyptian market.  For example, tariffs on semi-finished goods 
will expire in 2014, while tariffs on European cars will 
remain in effect until 2019. 
 
¶3.  (U) During the last three years, EU-Egyptian trade 
expanded by 63 percent from EUR 10 billion in 2003 to EUR 
16.3 billion in 2006, according to EU figures.  US-Egyptian 
trade grew 71 percent during the same period from USD 3.8 
billion to USD 6.5 billion (ref A). 
 
¶4.  (U) The value of Egyptian exports to both the US and EU 
increased faster than Egyptian imports during that period, as 
Egypt narrowed its trade deficit.  Agricultural products 
accounted for the largest share of the increase in Egyptian 
exports to the EU, growing at 80 percent, while oil exports 
rose 57 percent and industrial exports 42 percent, according 
to a study by the Egyptian Ministry of Trade and Industry 
gauging the effects of the association agreement.  Even so, 
agricultural products still accounted for only 6 percent of 
overall Egyptian exports to the EU, compared to 57 percent 
for oil and gas. 
 
¶5.  (U) European exports to Egypt in 2004 (the most recent 
compilation available) comprised 21 percent for 
power-generating equipment, 16 percent for chemicals, 16 
percent for transportation equipment, and 10 percent for food 
and agricultural products, according to a Ministry of Trade 
and Industry official.  In contrast, 22 percent of US exports 
to Egypt were in agricultural products, while machinery 
accounted for 39 percent and manufactured articles 12 percent. 
 
¶6.  (U) Under the association agreement and the EU-Egypt 
Neighborhood Policy Action Plan, which the EU and Egypt 
adopted in March, the parties have begun to negotiate further 
liberalization of trade in agricultural products.  Even if 
successful, however, the negotiations will not significantly 
disadvantage U.S. agricultural products in Egypt. US bulk 
commodity exports including corn and soybeans constitute 85 
percent of US agricultural exports to Egypt and already enjoy 
duty-free access.  However, the GOE does assess duties such 
as a 20-percent tariff on apples for products deemed as 
luxuries, an important growth market for U.S. exporters, and 
trade preferences for such European products would make US 
products less competitive. 
 
------------------------------------------ 
EU Standards Could Disadvantage US Exports 
------------------------------------------ 
 
¶7.  (SBU) A larger concern for US exporters is that Egypt 
will increasingly adopt European standards for its internal 
market.  The Action Plan calls for a reduction in non-tariff 
trade barriers and harmonization of standards between the EU 
and Egypt, including "progress on regulatory convergence, 
adoption of EU technical norms and standards."  Several 
Egyptian importers and representatives of US exporters have 
warned that could give EU exporters a crucial advantage in 
the Egyptian market.  In fact, Egyptian importers of kitchen 
 
CAIRO 00001407  002 OF 002 
 
 
appliances have cautioned FCS that Egyptian regulations now 
under development would bar US products from the Egyptian 
market. 
 
¶8.  (SBU) However, Barbara Stacher, an EU trade official 
based in Cairo, told Econoff that the EU's initial goals of 
harmonization of standards are modest -- limited to a few 
categories such as electrical appliances and medical 
equipment -- and are constrained by a limited technical 
capacity in the GOE and divergence in standards among EU 
members themselves.  She said the GOE has used sliding 
standards to protect domestic manufacturers -- for instance, 
refusing US cutlery exports because they did not conform to 
standards based on an EU model, while refusing EU cutlery 
imports because they did not conform to US-based standards. 
 
¶9.  (SBU) Wael Hamid, an MFA official responsible for 
implementing the EU agreement, said various Egyptian agencies 
have partnered with EU members for technical assistance, such 
as the postal service with France, maritime safety with 
Sweden, and tourism with Austria.  The EU is also providing 
EUR 46 million in grants under a Trade Enhancement Program to 
increase the GOE's technical capacity for trade facilitation. 
 (USAID also supports an extensive number of programs to 
promote customs and trade reform in Egypt, ref B.) 
 
¶10.  (SBU) Comment: Strengthened EU-Egyptian trade relations 
will help improve the business climate in Egypt and promote 
Egyptian economic development, benefiting the US and Egypt's 
other trading partners.  But Egyptian adoption of European 
standards could limit the access of US products to this 
growing market in coming years.  Post intends to convene a 
working group chaired by FCS and including private-sector 
representatives to monitor the development of Egyptian 
standards and ensure that US exports remain competitive. 
RICCIARDONE