Ahmed Farouk Ghoneim Cairo University aghoneim@gmx.de

1. "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

2. The study aims to investigate the needfor 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.

3. 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.

4. 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

5. 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.

6. 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.

7. 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.

8. 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).

9. 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.

10. 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).

11. 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.

12. ACase 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.

13. Source: United Nations Commodity Trade Statistics Database (UN COMTRADE) By Decision 96/301/EC of May 3, 1996the 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.

14. Source: United Nations Commodity Trade Statistics Database (UN COMTRADE)

15. 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.

16. 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.

17. 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.

18. 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.

19. Conclusion and Policy Implications: • Focus should be on quality of institutions and 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.