Bridges Weekly Trade News Digest • Volume 8 • Number 43 • 15th December 2004

US, Egypt, Israel Sign 3-Way Trade Pact; May Fall Foul Of WTO

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Egypt, Israel, and the US have inked a three-way trade pact under which the US will grant tariff-free access to goods produced in certain areas of Egypt that contain a minimum percentage of Israeli inputs. However, the WTO compatibility of the unilateral market access scheme remains in question.

Officials from the US, Egypt, and Israel met in Cairo on 13-14 December to sign the deal establishing "Qualified Industrial Zones" (QIZs) in Egypt and Israel. If QIZ factories add 35 percent to the value of a product, with Egypt and Israel contributing at least one-third (11.7 percent) each, the product will receive duty-free access to the US market. Similar QIZs have existed in Jordan since 1998.

Supporters of the accord say that it will create 200,000 to 300,000 jobs, mostly in the textiles sector, in the first year after its implementation in 2005; they expect garment exports to the US to double to around USD 1 billion by the end of the year. The Egyptian trade minister also said that the pact "will contribute to a just and comprehensive peace" in the region. Opponents call these projections exaggerated, and argue that the deal is biased in Israel’s favour, noting that Jordanian QIZs have an Israeli content requirement of only eight percent. Sources suggest that concerns about competitiveness after the phase-out of textiles quotas in January 2005 may have prompted Egypt to agree to the deal, which has been on the table since 1996.

However, some experts say that the agreement may be discriminatory according to WTO law. Israel is classified as a developing country in the WTO, but the 11.7 percent minimum content requirement does not extend to all developing country Members. The United States has bilateral free trade agreements (FTAs) with Israel and Jordan. It does not have one with Egypt, though the two countries have been discussing a possible FTA for some time.

ICTSD reporting; "Egypt Trade Deal With Israel Stirs Debate," ASSOCIATED PRESS, 12 December 2004; "United States, Egypt and Israel to Launch Historic Trade Partnership: USTR Zoellick to Participate in Signing in Cairo," OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE PRESS RELEASE, 12 December 2004; "Missing a Chance," INTERNATIONAL HERALD TRIBUNE, 20 November 2004;"Egypt, Israel, U.S. Sign Partial Free Trade Deal," REUTERS 14 December 2004; "Moving closer to a US-Egypt FTA," Al-Ahram Weekly Online, 1-7 July 2004.