The Mercosur submitted a free trade agreement negotiation proposal to the Egyptian government last week. The draft document, containing the broad lines for a treaty, was handed over by a delegation from the South American bloc to Cairo, led by the head of the Department of Foreign Negotiations at the Brazilian foreign office (Itamaraty), ambassador Evandro Didonet.
"The proposal prompted thorough discussion, with requests for clarification by the Egyptians. It was decided that they are going to submit a formal reply as soon as possible," Didonet revealed.
According to him, the text concerns the negotiation of a free trade agreement under the rules of the World Trade Organization (WTO). In the beginning, when the two parties launched the effort, the aim was to have a tariff preference agreement, which is less comprehensive, and then evolve into free trade. In order to fit into the latter category, the agreement must include the vast majority of products in the bilateral trade basket.
The process was initiated in 2004, when the two parties signed a framework agreement, a sort of declaration of interest in negotiating. From then on, however, according to Didonet, the Mercosur has made seeking free trade agreements its standard. "Presently, the benefit-to-cost ratio shows that getting to the heart of matters faster is better," he said.
The proposal of modalities that was submitted, according to the ambassador, includes tariff reduction, rules of origin, safeguards, technical, sanitary and phytosanitary barriers, customs cooperation and controversy solving.
There should be no significant resistance from Egyptian negotiators, as the country already sustains a partnership agreement with the European Union, which is theoretically much more complex. "However, they must consult with the domestic private sector, so as to reach a consensus that is in keeping with their possibilities," he said.
By the same token, Mercosur negotiators will need to check with businessmen in the bloc's four countries (Argentina, Brazil, Paraguay and Uruguay) for sectors that might pose problems. The ambassador believes that there should be no issues in this area either, especially if Brazilian exports are taken into account, as they are mainly comprised of products such as meats, ores, sugar and vegetable oils, all of which are goods that Egypt needs to import, because its domestic production is not enough to cater to the demand.
"But this is a natural challenge in any negotiation process. This or that sector will always have greater concerns," stated the diplomat. In the case of negotiation between the Mercosur and the Gulf Cooperation Council (GCC), for instance, the agreement faced resistance by the Brazilian petrochemical industry, which fears competition of products from Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, Kuwait and Oman - the GCC member countries.
One point that should attract attention, according to him, is the flow-of-trade issue. In the case of Brazil, the balance of trade with Egypt is heavily tilted. Brazilian exports to the Arab country totaled US$ 956 million from January to September this year, whereas imports amounted to US$ 149 million.
Didonet underscored, though, that there is political interest in the progress of negotiations, as was shown during the visit to Brazil, in August, of the Egyptian minister of Industry and Trade, Rachid Mohamed Rachid.
The trip of the minister contributed for the meeting to have taken place in Cairo last week, because ever since the signing of the framework agreement, in 2004, no negotiation had taken place between the two parties.
Before traveling to Egypt, the delegation from the Mercosur went to Jordan to negotiate another free trade agreement. In this case, the process is moving faster. The two parties have already traded lists of products to be included in the treaty, discussed rules of origin, tariff and economy-related features of each side, and trade policies. The first tariff reduction proposals should be submitted by late February, and a new round should take place in the first half of 2009.
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