"Investigating the Needs and Potential
Effects of Some Aspects of Deep
Integration in the EU-Egypt Association
Agreement and Neighbourhood Policy"
Ahmed Farouk Ghoneim
Cairo University
aghoneim@gmx.de
• The study aims to investigate the need for and
potential effects of deep integration within the
context of the Egypt-EU Association Agreement
(AA) and the Neighbourhood Policy.
• The general theme of the study is that deep
integration has different shapes and forms, and
that each form or shape can have a different
effect, an issue that the existing literature so far
has not tackled seriously.
• The study argues that the need for deep
integration differs according to perceived goal by
focusing on two main aims of deep integration,
namely better market access, and enhancing the
business and investment climate.
• The study adopts a case study approach by
focusing on two fields, namely agriculture and
competition.
Outline of the Study:
• Introduction
• Conceptual Framework and Empirical Evidence
• Selected Examples of "Wrong" Deep Integration
•
•
•
and Its Effects
Case of Deep Integration to Enhance Market
Access: Agricultural Exports and Standards
Case of Deep Integration to Upgrade Domestic
Business Environment: Competition Law
General Conclusions and Policy Implications
Conceptual Framework and
Empirical Evidence:
• There is a general tendency among trade
•
specialists to argue that an effective RTA in a
globalized world and with the erosion of tariff
preferences due to the general reduction in tariff
levels needs to include some elements of
deepness.
However, the channels by which such deep
integration can enhance welfare have not been
thoroughly investigated. This is mainly the
appropriate institutions which prevail in
developed countries might not fit developing
countries.
• As asserted by Hoekman and Winters (2007)
“From a development perspective the acid test is
whether proposed or negotiated rules in
regulatory areas will improve the business
environment, lower costs and/or help achieve
domestic non-economic objectives in the
developing country. Credibility of the wrong
policy is not an aid to development.”
• Moreover, deep integration cannot be efficiently
implemented if it focuses merely on laws and
regulations and disregards the infrastructure
required for effective adoption of rules and
regulations.
Selected Examples of "Wrong"
Deep Integration and Its Effects
• As stated by World Bank (2005), “investment
and IPRs are two areas in RTAs where the
development potential is largely unproven”.
We add also the environmental measures to
the list of investment and IPR.
Investment Issues:
• The excessive regulatory and bureaucratic
burden such RTAs impose on the fragile
institutional capacity of developing countries
might render it ineffective and hence the
credibility effect is lost.
• Example: US rules in investment have forced
Chile to change its domestic laws and
regulations to modify its controls on capital
inflows that were designed to curtail
destabilizing hot money inflows. Even the
International Monetary Fund (IMF) claimed that
such modifications were not in the benefit of
Chile macroeconomy (World Bank, 2005).
IPR Issues:
A traditional US RTA includes
TRIPS+ elements as:
• Example: A recent OXFAM (2004) report which
showed that the terms that the US imposes
regarding IPR in the pharmaceutical sector in its
FTAs as “TRIPS+” obligations close off the public
health safeguards available to WTO members
under TRIPS and restrict access to affordable
medicines in developing countries.
Environmental Issues:
• Example: Within the context of NAFTA several
changes in its domestic laws have taken place
and large private enterprises and public sectors
have complied but the majority of firms which
are medium and small enterprises constituting
90% of the firms in Mexico have failed to comply
(Hufbauer and Schott, 2006).
• Deeper integration from a developing country
•
•
perspective will be useful if it either enhances
the market access of its exports in the
developed country market or upgrades its
domestic business environment.
The aim of enhancing market access is clear,
however the aim of upgrading the domestic
business environment is not quite well
understood.
There is a need to evaluate the costs and
benefits of adopting deep integration, which are
rather clear in terms of market access but not
the case in enhancing domestic business
environment.
A Case of Deep Integration to
Enhance Market Access: Agricultural
Exports and Standards
• Egyptian agricultural exports to the EU have
•
•
suffered from fluctuations
Potatoes, onions, rice and cotton constitute
more than 50% of Egyptian agricultural exports
to the EU.
In the last four years there was one notification
reported by RASF for each onions and rice
originating in Egypt.
Source: United Nations Commodity Trade Statistics Database (UN COMTRADE)
By Decision 96/301/EC of May 3,
1996 the European Commission (EC)
imposed a series of restrictions on
imports of potatoes from Egypt.
Decree 757/2005 allows export of potatoes only to
companies that exported to the EU an amount
not less than 4000 tons during last season and
limited to a quantity not exceeding those that
were exported last season.
Source: United Nations Commodity Trade Statistics Database (UN COMTRADE)
Is Egypt Ready for Deep Integration in
this Field?
• Large number of local offices of international
•
•
•
testing
certification
and
accreditation
organisations.
Harmonization of a large number of standards
has taken place
National Accreditation Council is taking steps to
be recognized internationally.
Databases of accredited conformity assessment
bodies have been developed.
• Empirical field evidence has shown that
complying with EU norms and standards does
have a high cost in terms of compliance, but at
the same time ensures stable market access,
higher price premium, and ability to access other
non-EU markets (Mandour, 2006).
• However, AA and Action Plan have done nothing
to enhance deep integration.
A Case of Deep Integration to Upgrade
Domestic Business Environment:
Competition Law and Policy
• There is no agreement on the need to
•
•
harmonize competition related provisions in
RTAs. Some studies ensure the need of it, while
other emphasize the need of cooperation
EU has always favored harmonization in its
RTAs.
In the AA there are three Articles that deal with
the issue, but there is a defacto harmonization if
competition provisions affect trade between
Egypt and the EU.
• A first best solution is harmonization, but the
•
•
gap is huge, developmental needs are different,
and Egypt's institutional infrastructure is weak.
Examples of differences include: Merger control,
and safe harbour law. This could restrict trade
and imply additional costs for Egypt without
necessary payoff.
Solution lies in cooperation which AA and Action
Plan did not tackle. Examples include absence of
positive and negative comity.
Conclusion and Policy Implications:
• Focus should be on quality of institutions and
•
•
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not harmonization of institutions.
Differentiation should be made based on the
goal of deep integration.
If market access, then harmonization might be
the best option whereas if enhancing domestic
institutions, then cooperation might be better to
allow
for
policy
space
and
different
developmental objectives.
Efficient Infrastructure is a precondition for
effective deep integration.