EU-Egypt relations

1. Background

The first Cooperation Agreement between the EC and Egypt was signed in 1977. The Cooperation Agreement was implemented by the conclusion of four bilateral protocols, from 1977 to 1995. The Cooperation Agreement provided for economic, technical and financial aid as well as commercial cooperation.

With the economic, technical and financial cooperation, the EC aimed at participating in Egypt’s development of its production and economic infrastructure in order to diversify its economic structure. This comprehended notably Egyptian industrialisation and the modernisation of its agriculture, as well as cooperation in the fields of science, technology, the protection of environment, the fisheries sector and the encouragement of private investments that are in the mutual interest of both parties.

The principal actions funded by the bilateral EU-Egypt protocols and funds were: Public Enterprise Reform and Privatisation Programme (€43 Million), Private Sector Development Programme (€45 Million), Reform of the Financial Sector/Central Bank (€11.7 Million), Support to the Population Programme in Upper Egypt (10 million €).

2. The Euro-Mediterranean Partnership

The MEDA Programme

The MEDA Programme remained, until 2000, the main instrument to manage the aid under the Euro-Mediterranean Partnership, agreed in Barcelona in November 1995. The MEDA Programme was created to encourage and support the reform of economical and social structures of Mediterranean partners, in view of the establishment, by 2010 of a free trade area around the Mediterranean. The MEDA resources are attributed bilaterally, within the framework of the National Indicative Programmes while the regional Indicative Programme covers multilateral activities.

Under MEDA, €320 Million were spent on Economic Transition Support while € 365 Million were devoted to Socio-Economic Balance Support. Additionally, the European Investment Bank provided loans for €1.350 Million during the period 1992-2000.

The priorities of the MEDA II (2000-2006), renamed in 2000 following the modifications made to the initial MEDA programme, will be the support to the implementation of the Association Agreement and maintaining a balance between economic and social development.

The Association Agreement

The Association Agreement between the EU and Egypt was signed in June 2001 after nearly five years of negotiations, before coming into force in 2004, legally binding both parties.

Although every Euro-Mediterranean Association Agreement signed by the EU and its Mediterranean partners is agreed on bilateral basis, there are certain common aspects to all of them: political dialogue, respect for human rights and democracy, establishment of WTO-compatible free trade over a transitional period of up to 12 years, provisions relating to intellectual property, services, public procurement, competition rules, state aids and monopolies, economic cooperation in a wide range of sectors, cooperation relating to social affairs and migration (including re-admission of illegal immigrants and cultural cooperation.

The Agreements create two common institutions, the Association Council, at Ministerial level, and the Association Committee, at senior official level, which meet at regular basis.

The respect of human rights and democratic principles are an important element of political cooperation between the partners. The Agreements foresee the possibility to be suspended in the event of major human rights violations.

The conclusion of a Euro-Mediterranean Free Trade Area by 2010 is the most important consequence under the economic chapter. Both parties committed themselves to further liberalise their bilateral trade and to help ensure that Egyptian businesses and consumers benefit from the further development of international trade and investment.

The bilateral Free Trade Area will be based on reciprocal tariff liberalisation for both industry and agriculture. All industrial duties will be dismantled over a transitional period of 12-15 years. As far as agricultural goods are concerned, Egyptian quotas granted by the EU are enlarged for Egyptian main exports and new tariff quotas for products currently not included in the preferential treatment are also established.

The Association Agreement comprehends the setting up of new institutional structures for the intensification of political dialogue and for cooperation in the fields of education and culture and the fight against crime.

The European Neighbourhood Policy

Current relations between the EU and the Arab Republic of Egypt are built around the Action Plan of the European Neighbourhood Policy. Egyptian aspirations to strengthen ties with the EU and further integrate the global economy, as well as European interests in a strategic partnership with neighbouring nations were met with the creation of the EU-Egypt Action Plan, which provides a means of promoting and maintaining peace, stability and security in Europe’s Southern periphery.

The intensification of relations between the two parties also seeks to modernize Egyptian economy and society, through joint ownership, mutual objectives and interests, as well as the implementation of social, political, economic and institutional reforms, all in accordance with Egypt’s National Development Plan 2002-2007.

The ENP constitutes the main framework for financial assistance delivered to Egypt. Egypt is entitled to a share of financial assistance provided through the European Neighbourhood and Partnership Instrument, which replaced the MEDA II Programme in 2007 and holds an overall financial budget of € 11.9 billion.

Commitment to these common objectives and values will dictate progress made in terms of trade liberalization, the openness of the European internal market and political cooperation.

3. Trade Relations

Trade between the EU and Egypt has increased considerably in recent years, particularly since the initiation of the Association Agreement in 2004. Half of European industrial exports to Egypt have, since then, been liberalized, while agricultural trade has been intensified thanks to the implementation of special preferential treatment for agriculture.

The export of European goods to Egypt in 2007 amounted to € 10.3 million, while imports of Egyptian products represented € 7 million. EU imports from Egypt are currently dominated by energy (43.4%) and clothes + textiles (10%). On the contrary, the bulk of European exports to Egypt are machinery (26.2%) and chemicals (15.4%).

In terms of services, Egyptian exports to the EU in 2006 was dominated by transportation (31%) and travel (57%) services, while business (57%) services represented the main form of imports from the EU.

Egyptian economic reforms and privatization in 2005 led to an important increase in Foreign Direct Investment. Out of a total stock of € 5.3 billion, European direct investment amounts to € 1 billion.