PROMOTING ECONOMIC LIBERALIZATION IN EGYPT: FROM U.S. FOREIGN AID TO TRADE AND INVESTMENT By Bessma Momani*
In the early to mid-1980s, the United States became frustrated that its financial assistance was being wasted by Egypt’s inefficient, statist economy and wanted the Egyptian government to pursue economic liberalization. At the same time, the United States, observed that its foreign assistance program was less than optimal at effectively leveraging economic reforms. After the 1990-1991 Persian Gulf War, Congress put pressure on the administration to create a new economic relationship that would lessen Egypt’s aid dependency on the United States, and promote economic liberalization in Egypt. Specifically, Congress advocated ‘trade and not aid’ as the new rationale for the bilateral relationship. The Presidents’ Council, created by the two governments in 1994, along with several recent trade agreements, has become the cornerstone for this U.S. policy of pursuing economic liberalization in Egypt.
THE U.S.-EGYPTIAN FOREIGN AID allocation after Israel. (see Table 1 in RELATIONSHIP Appendix) Aid to Egypt was, at its core, “a The 1974 Open Door Policy (also referred to political symbol of evenhanded economic as infitah) and the 1979 Camp David Accord support,” as one U.S. government report put renewed Egyptian-U.S. diplomatic relations, it, especially as the large sums Egypt and the resumption of what has become a received were beyond its capacity to substantial amount of foreign assistance. effectively absorb.(3) In fact, development Historically, Egypt has been a leading experts believe that had Egypt’s economic military and political power in the region; for assistance been based on economic need instance, leading the Arab front in wars rather than on political objectives, Egypt against Israel. Egypt’s incorporation into the would have received $100-$200 million in American domain was therefore perceived to U.S. assistance.(4) This was a far cry from be essential for Middle East peace. Once the approximately $1 billion devoted to accomplished, in addition to the relative solely to economic aid. calm it created, a pro-western Egypt also For the United States, the benefits of removed an important source of Soviet foreign aid to Egypt were strategic, influence in the region. It became apparent diplomatic, and political. Egypt had led every to subsequent American administrations that Arab war with Israel, supplying most of the foreign aid to both Egypt and Israel was a personnel and military power. A pacified and worthy investment in order to maintain this neutral Egypt, it was hoped, would prevent relative Middle East peace.(1) further Arab-Israeli wars, at least on the With the Camp David Accord, Egypt interstate level. While there were no began to reap approximately $2 billion per permanent U.S. military bases in Egypt, in annum in U.S. aid, the second largest exchange for the foreign aid, U.S. forces 88 Middle East Review of International Affairs, Vol. 7, No. 3 (September 2003)
Promoting Economic Liberalization in Egypt: From U.S. Foreign Aid to Trade and Investment were allowed access and were granted the regional access, and influence in military ability to deploy equipment at strategic affairs are an important part of the American military posts in Egypt.(5) The United States rationale for military aid. Correspondingly, and Egypt also regularly held joint military U.S. foreign aid to Egypt is mostly exercises called Bright Star, which involved comprised of military aid. infantry, airborne, artillery, and armored U.S. foreign aid to Egypt also has ensured forces.(6) Moreover, military cooperation the preservation of a moderate Arab regime with Egypt allowed for a quick military capable of playing a legitimizing, diplomatic reaction, including naval passage through the role in Middle Eastern affairs. In addition to Suez Canal, to developments in the oil-rich its military and political capabilities, Persian Gulf. This proved especially useful historically, Egypt has also been a key during the 1991 Persian Gulf War. In a intellectual center of the Arab and Muslim declassified State Department report, the world.(8) Hence, in addition to its United States asserted that: legitimizing role in U.S. operations against Iraq in 1990-1 (as well as in Somalia and The thrust of our security assistance Bosnia), Egypt was often a meeting point for program is to build a modern force U.S. peacemaking efforts between Arab with interoperable equipment capable states, Israel and the Palestinians. President of maintaining Egypt’s defense and Mubarak was also frequently brought into of working effectively with U.S. these discussions, acting as an Arab forces in coalition warfare. Egypt’s figurehead in diplomatic situations. strong military is a stabilizing force Furthermore, the Egyptian-Israeli peace in the region. Its strength is at an served as an example for other moderate apex when combined with U.S. Arab states to emulate. The United States forces in regional coalition hoped that peace with Egypt would create a operations, as was demonstrated domino effect in the region, turning rogue during the Gulf War. We rely on states into friendly ones.(9) Egyptian cooperation in providing The political advantages of U.S. foreign quick transit of Egyptian airspace and aid to Egypt were significant. Increasing through the Suez Canal. The U.S. Egyptians’ standard of living promised to military routinely conducts 6-8 prevent a further rise of Islamic transits of the Suez Canal and some fundamentalism in that country, and thereby, 500 military overflights of Egypt the region. It was especially hoped that U.S. each month. Egypt has developed economic and food aid would undermine extensive experience in peacekeeping radical political elements. One senior and its military forces are working to administration official commented: enhance these abilities. At our request, Egypt contributed No one is trying to underestimate the significantly to UN peacekeeping [Islamic extremist] threat. But what operations in Somalia. Egypt also you have in Egypt and part of--a participated in peacekeeping large part of our aid effort to Egypt is operations in Bosnia and provided targeted on this is--is economic troops or observers in Georgia, reforms, because it is only through Liberia, Mozambique, Western moving forward on the Sahara and Namibia.(7) economic/social agenda that one is able...to undercut the ability of these To this day, military interoperability, Islamic extremists to undermine the Middle East Review of International Affairs, Vol. 7, No. 3 (September 2003) 89 Bessma Momani
political process, and quite frankly, highly visible to both the Egyptian regime come to power.(10) and Egyptian people.(11) These same projects then tended to clash with overall The United States wanted to ensure, above U.S. objectives of advancing economic all, Egyptian regime stability. U.S. foreign liberalization in Egypt. aid, it was believed, would undercut the The United States also found that U.S. aid ability of Islamic extremists to attain power was inefficiently absorbed into the Egyptian while increasing the popularity of the economy because of inadequate economic Egyptian regime. Moreover, U.S. economic reforms. A U.S. Government Accounting and food aid would allow the regime to delay Office (GAO) report noted that “U.S. implementing political liberalization by policymakers believed that Egypt might not quelling the urban masses through have the capacity to absorb increased project government subsidies. In short, foreign aid to aid and that the actual impact on the Egypt fulfilled U.S. strategic, diplomatic, and economy would depend on Egypt’s response political objectives, while it was also to basic economic reforms...”(12) intended to be a conduit for future economic Washington believed that money spent on liberalization. Egypt was being wasted because of the inefficiencies in the statist Egyptian U.S. FOREIGN AID AND EGYPTIAN economy. USAID officials also believed that ECONOMIC LIBERALIZATION Egypt should take advantage of the cushion One of the understated purposes of U.S. that foreign assistance gave the Egyptian foreign aid has been to promote economic government and implement economic liberalization in Egypt. Some of the liberalization, calling this “a window of economic reforms, sought by the U.S. opportunity” that Egypt continued to administration, included fiscal discipline, ignore.(13) reducing government expenditures, The United States wanted Egypt to increasing tax revenues, liberalizing interest implement economic reforms, but recognized rates, liberalizing exchange rates, liberalizing that it would not be able to pressure Cairo trade, promoting foreign direct investment, into pursuing economic liberalization. U.S. deregulating the public sector and government reports indicated that safeguarding property rights. By the mid- “...although State [Department] officials 1980s, however, the U.S. government agree with the need for structural changes in recognized that its foreign assistance the [Egyptian] economy in the long term, program to Egypt was ineffective at pushing they believe that pushing too hard for these these essential economic reforms forward. changes may raise political tensions... and Part of the problem was that the United could adversely affect other important States Agency for International Development aspects of our bilateral relationship.”(14) The (USAID) was reportedly pressured into State Department acknowledged that Egypt implementing projects that were more would not tolerate overt U.S. pressure to symbolic in nature than economically sound. liberalize its economy. Similarly, USAID USAID found itself promoting projects that reported to the GAO that “...the Egyptian clearly showed Egyptians that the project had Government would greatly resent any effort been paid for by the United States. This was on the part of the United States to condition partly a reaction to the skepticism that or even create the appearance of Egyptians felt toward U.S. foreign aid. As a conditionality being attached to result, overly large and expensive projects assistance.”(15) USAID, however, had, on were implemented merely because they were occasion, tried to use funding as leverage for 90 Middle East Review of International Affairs, Vol. 7, No. 3 (September, 2003) Promoting Economic Liberalization in Egypt: From U.S. Foreign Aid to Trade and Investment policy reform. One incident involved belief within U.S. administrations that aid pressuring the Egyptian government to preserves peace in the Middle East.(22) increase electricity tariffs, which led to a Nevertheless, by the mid-1990s, the U.S. negative reaction by the Egyptian administration sought to use trade and government. According to the State private foreign investment as a means of Department, because of this incident with pushing Egyptian economic liberalization USAID, “the Egyptians felt misled” and the forward. State Department observed, “This was a case in point of how not to go about leveraging SHIFT IN INSTRUMENTATION: reforms.”(16) TRADE AND NOT AID USAID was unable to use funds as During the Cold War, U.S. foreign aid leverage because the “political realities of was used to keep states in line and loyal to this program make it difficult… to U.S. interests and objectives. As the notion steadfastly follow a strategy of denying of a country defecting to the Soviet side funding to a sector or project if the GOE became obsolete following the end of the [Government of Egypt] does not make policy Cold War, the United States’ need to reforms.”(17) In other words, the Egyptian dispense foreign aid decreased while its government perceived the aid program as an desire to advance its position in the global entitlement for signing the Camp David economy through private investment Accord, where equality of treatment between increased. In addition to this shift from Egypt and Israel was supposedly doling out foreign aid to increasing private guaranteed.(18) In consequence, USAID investment, what foreign aid remains has found that the aid at its disposal did not give often been modified to promote private U.S. the organization any real influence to induce investment.(23) Egypt to alter its economic policies. This increased propensity to promote Moreover, the USAID mission private U.S. investment is the result of an complained that--despite having a staff of increasing perception that the country’s several hundred Americans--they were strategic objectives are relatively secure. U.S. unable to manage the large sums of money administrations in the post-Cold War era promised to Egypt.(19) Another difficulty have supported this shift in instrumentation with U.S. financial assistance was that such as part of a larger “strategy of large amounts of funds were amassed in preponderance,”(24) a strategy aimed at preparation for upcoming projects, such that preserving the United States’ military and at one point more money was in the pipeline economic preeminence by economically for projects than was actually being spent on engaging potential opponents and projects.(20) Hence, because of both political discouraging the emergence of other rivals and management difficulties, USAID was for global power.(25) Some of the many unable to influence the Egyptian government measures taken following the Cold War to into liberalizing its economic policies. preserve U.S. economic primacy through The United States needed a viable promoting private U.S. investment include: instrument to help push Egypt into economic liberalization, while being able to ensure the • expanding free trade agreements; political stability of the Egyptian regime.(21) • increasing the prominence of the Although there continued to be much Commerce Department’s Foreign and discussion regarding the efficacy of U.S. Commercial Service office to promote foreign aid, few proposed that it be removed U.S. exports; entirely, mainly because of the underlying • creating the National Export Strategy to Middle East Review of International Affairs, Vol. 7, No. 3 (September 2003) 91 Bessma Momani
assist private American firms compete corresponding cessation of Soviet internationally; loans to Mideast arms purchasers, as • creating the Advocacy Center (in the well as the effects of the Iran-Iraq Department of Commerce) to help War and the Persian Gulf War, private U.S. firms resolve international together have reduced the military disputes with foreign governments; and threats to Israel substantially. And if • creating the National Economic Council aid to Israel can be cut, funds going in the White House to mirror and co- to Egypt... a country with only ordinate with the traditional National modest external threats probably can Security Council.(26) be too... At a time when around 30 major armed conflicts are being After the 1991 Persian Gulf War, waged around the world, it is not Congress reassessed the value of foreign aid clear that the Middle East deserves to Egypt, among other countries. Questions such a disproportionate share of regarding the utility of aid to Egypt and to available funding.(31) other states in the post-Cold War era were raised in Washington and in academic Momentum for reduction in U.S. aid circles, especially as the raison d’etre for increased even more when the Palestinian U.S. aid--checking Soviet influence--was no Liberation Organization (PLO) and Israel longer applicable.(27) This created tension signed the Declaration of Principles in 1993. between Congress and the Executive, as the One writer asserted that it had become former insisted that funds to Egypt were “increasingly difficult to justify paying Cairo “going down the drain.”(28) At the same huge sums to do what is, presumably, in time, public opinion grew strongly against Cairo’s best interest--remain at peace with continued foreign aid to both Egypt and Israel.” (32) When Jordan and Israel made Israel, as demonstrated in two 1994 polls peace in 1994, the strategic value of Egypt conducted by the Chicago Council on appeared even more tenuous. Still, Jordan’s Foreign Relations and the Wirthlin Group, peace with Israel, while important to overall and a 1995 poll conducted by the Program on U.S. strategic objectives, only slightly International Policy Attitudes at the reduced the value of Egypt’s role in the University of Maryland.(29) By 1993, peace process, as Jordan is a small country Congress began recognizing that foreign with little military presence in the region. assistance to Egypt needed to be streamlined The symbolic value of Jordan’s incorporation and eventually eliminated. A 1994 into the peace camp was, however, essential. Congressional Budget Office (CBO) report Consequently, in 1997, Congress to the U.S. Congress suggested that “one appropriated an additional $100 million to possible approach would [be to] reduce grant Jordan, allocated from both Egypt and aid given to Israel and Egypt to about the Israel’s economic aid. level that prevailed immediately after the This redistribution of aid was one Camp David Accords, saving more than $1 manifestation of the Congressional pressure billion a year in budget authority by the end on the White House to reduce the aid of the decade.”(30) Congress also argued that dependent relationship with Egypt and aid to Egypt should be decreased for strategic redirect assistance to other states. At the reasons. These reasons included: same time, Congress recognized the importance of a pro-western Egyptian The end of the Cold War and government and did not want to jeopardize future Middle East peace.(33) The CBO 92 Middle East Review of International Affairs, Vol. 7, No. 3 (September, 2003) Promoting Economic Liberalization in Egypt: From U.S. Foreign Aid to Trade and Investment report warned that: to preserve Middle East peace and promote economic liberalization in Egypt while Larger cuts in aid could well be decreasing official foreign assistance. In imprudent. Israel and Egypt remain 1993, a senior administration official very important U.S. allies in a region commented, “a key link to the talks on still fundamentally unstable and assistance with Egypt was the importance dangerous. Moreover, Egypt’s that the President [Clinton] and the U.S. political stability--a linchpin of the attach to Egypt’s economic reforms, which in prospects for lasting Middle East the U.S. view are vital to the future of Egypt. peace--is hardly assured at this time, And we want to continue to be as supportive and its prognosis might worsen if as possible in that effort and helping Egypt economic conditions deteriorated progress toward self-sufficiency is a key further.(34) objective.”(37) Economic cooperation instead of aid dependency was the new Clearly, ensuring peace in the Middle East aspiration for future American-Egyptian required a prosperous Egyptian economy, economic relations. and the CBO report recognized that In 1995, U.S. Ambassador to Egypt economic malaise in the country could lead Edward Walker stated, “what we really want to political insurgency. The dilemma was to encourage is a relationship with Egypt how to decrease U.S. foreign assistance to based on trade, friendship and a partnership Egypt while ensuring that the Egyptian that is not ultimately based on aid,” government pursued economic liberalization. suggesting that the new relationship The solution decided upon was to increase “represents a concerted effort by the U.S. American-Egyptian trade ties through business community and the U.S. promoting private sector investment while government to expose American business to reducing official assistance. This was the opportunities of the region.” Walker thought to ensure economic liberalization added, “[my] staff has diplomatically and growth in Egypt while preserving a observed in our commercial publications that strong American-Egyptian relationship. This there are many American companies over the was also in keeping with Congressional horizon waiting for the situation [of state debates over changes to the future of U.S. control] to clarify.”(38) The new initiative foreign assistance programs, specifically was to make “Egypt open for U.S. business.” “whether the United States still needs to While the Executive and Congress generally maintain an active, globally focused considered enhanced trade with Egypt to be economic aid program, or can it be of more strategic and political than economic transformed as a smaller, more targeted benefit, it was also thought that trade would instrument, with some elements being be a more effective strategy than aid at ‘privatized’ that would support only the inducing economic liberalization.(39) highest U.S. foreign policy interests.”(35) In 1994, Vice President Al Gore was Privatizing elements of the foreign aid placed in charge of a dialogue with President program was considered to be a viable option Husni Mubarak to find a basis for the in the case of Egypt.(36) bilateral relationship with Egypt after the end Congress pressed the Executive in 1993 of aid.(40) The new relationship was to change the underlying principle of U.S. formally called the U.S.-Egypt Partnership foreign assistance to ‘trade and not aid.’ for Economic Growth and Development. The Through increased foreign trade and stronger purpose of the initiative was to foster bilateral economic relations, Congress sought American private investment in Egypt as an Middle East Review of International Affairs, Vol. 7, No. 3 (September 2003) 93 Bessma Momani alternative to official U.S. government aid, the Egyptian British Bank, Ezz Group, Fine ushering in a new model for U.S.-Egyptian Foods Group, Nile Clothing Company, and relations. the Orientals Group. Many of these The structure of the partnership consisted companies have well-established connections of various committees in charge of with the Egyptian elite and are close to promoting private sector development. The President Mubarak. These crony capitalists committees included Economic Policy, include the President’s son, Gamal Mubarak, Trade, Investment, and External Finance; who was acting chair of the Egyptian Technology; Sustainable Development and Presidents’ Council (a fact that lends the Environment; and Education and Human credence to the suggestion that Egypt has Resource Development. Some of the changed its domestic base of support from activities of the committee on Economic public employees to business elites).(44) Policy, for example, involved providing The Presidents’ Council became a new technical advice on privatization, WTO means of communicating American desires rules, intellectual property right protection, for Egyptian economic liberalization. The improving Egyptian capital markets, Council’s influence in shaping Egyptian establishing government securities, economic policy is evident. Public improving sales tax rules and agricultural impression of the Council was that it had price liberalization.(41) The partnership become the prime source for policy ideas, effectively started to promote American and in effect the new ‘shadow cabinet’ in private sector initiatives and to promote Egypt.(45) This was, however, denied by economic liberalization. members of the Council itself. The Egyptian Most importantly, the new relationship Co-Chair of the Presidents’ Council was institutionalized with the advent of a bi- remarked, “The Council has a purely national consultative council. The consultative role and has no executive partnership established a joint private sector authority of any kind.”(46) A United States Presidents’ Council, one in Egypt and one in Information Service (USIS) spokesperson the United States, to advise each government suggested that, despite the Egyptian on opportunities to further advance Egyptian Council’s attempts to keep a low profile, it is economic liberalization and bilateral widely regarded as an elite club.(47) economic relations.(42) The Council was The Presidents’ Council worked to composed of both American and Egyptian advance many structural economic reforms, representatives who consulted independently, such as helping Egypt to privatize the bilaterally and with their respective telecommunications, banking, customs and governments. The Council became an taxation sectors. In March 1997, President important policymaking forum on economic Clinton said “the U.S.-Egypt partnership for issues affecting both countries.(43) economic growth and development has made The Presidents’ Council consisted of 15 a real difference by promoting privatization American and 15 Egyptian corporate and tariff reduction.”(48) President Clinton representatives. Among the American added, “The Presidents’ Council… has companies involved were Lucent achieved dramatic success, increasing trade Technologies, Motorola, Citibank, General and economic reforms, and deepening Electric, Pfizer, and Babcock and Wilcox. support for necessary economic The U.S. representatives were mainly reforms.”(49) Vice President Gore and derived from the oil industry, and also from President Mubarak’s joint statement affirmed the telecommunications and pharmaceutical that “the private sector must continue to play sectors. The Egyptian companies included the role of a full partner with government in 94 Middle East Review of International Affairs, Vol. 7, No. 3 (September, 2003) Promoting Economic Liberalization in Egypt: From U.S. Foreign Aid to Trade and Investment
Egypt’s development,” and welcomed the form the basis for a Middle East Free Trade continuing input of the U.S.-Egypt Region with the essential peace partners. Presidents’ Council.(50) Regional economic integration will be a key American members of the Council have to lasting peace and stability in the lobbied Congress for expanding Egyptian- region.”(55) Others, such as U.S. Trade U.S. trade relations into a free trade Representative Charlene Barshefsky, have agreement; they have consulted with also mentioned such an agreement’s Egyptian Ministers to advance economic importance for regional peace, “Free trade policy reforms; and have defended U.S. talks are not substitutes for peace corporations, such as Babcock and Wilcox, negotiations, but they can help by giving Lucent Technologies and Microsoft, in countries a stake in each other’s disputes with the Egyptian government.(51) prosperity.”(56) American members have also advocated U.S. After Congress approved the FTA with corporate interests in Egypt and had strong Jordan in October 2000, Congressional connections to Vice President Al Gore’s support for a similar agreement with Egypt Office, the Treasury Department and the started to mount.(57) The American members State Department. of the Presidents’ Council were instrumental In 1998, the Egyptian-U.S. relationship in alerting the Congressional members who expanded further. On May 3, 1998, Vice had signed the letter in support of Jordan’s President Gore announced the new Trade and trade agreement of the need to do the same Investment Framework Agreement (TIFA), with respect to Egypt.(58) As a result, forty- which extended the scope of the 1994 U.S.- five Congressional representatives sent a Egyptian Partnership for Economic Growth letter to President Clinton on November 1, and Development.(52) U.S. Trade 2000, urging the administration to begin Representative Charlene Barshefsky negotiating a FTA with Egypt and citing the highlighted that “entering into a TIFA with geopolitical and economic benefits of such an Egypt marked the first step toward creating agreement. Congress also noted that an FTA freer trade between our two countries, and would be a suitable step toward streamlining established the basis for stronger economic official assistance to Egypt and would support ties to bolster our joint efforts at further the ten-year economic assistance phase-down peace in the region.”(53) negotiated between the two countries in Though the TIFA was an important first 1998.(59) step towards creating a legal framework for a Despite moderate Congressional support future Free Trade Agreement (FTA) with for a FTA with Egypt, the Clinton Egypt, there are several issues that must be administration had reservations regarding the overcome before such an agreement is readiness of Egypt to become a full trading signed, including U.S. domestic concerns, partner. Then U.S. Ambassador to Egypt such as the impact on unskilled American Daniel Kurtzer highlighted several measures workers.(54) Such an FTA, if signed that needed to be implemented in Egypt however, would have great importance as it before negotiating a FTA. The Government would in effect create the beginning of a was to pursue: regional free trade area in the Middle East. As stated in a Congressional letter to 1) full implementation of the WTO President Clinton on November 1, 2000: “a TRIPS [Trade-Related Aspects of U.S.-Egypt free trade agreement, when Intellectual Property Rights] combined with free trade agreements with agreement; 2) implementation of the Israel, the Palestinians, and Jordan, would WTO Customs Valuation Middle East Review of International Affairs, Vol. 7, No. 3 (September 2003) 95 Bessma Momani
Agreement; 3) joining the WTO advancements in intellectual property rights Information Technology and Basic reform, “...what’s important for Egyptians to Telecommunications Agreement; 4) recognize is that this [a FTA] is not just liberalization of additional services going to be handed to them on a plate by and additional tariff reductions; 5) foreign ministers because Egypt is a big and additional IPR [Intellectual Property important country. It’s going to require some Rights] protection; 6) improving work.”(65) Consequently, the Egyptian and Egypt’s standards and inspection U.S. governments have yet to finalize a FTA. program; and 7) consider joining the WTO Government Procurement CONCLUSION Agreement.(60) Egypt plays an important role in achieving the United States’ strategic objectives in the While the Clinton administration was Middle East, and consequently, the United hesitant about entering into a FTA with States contributes approximately $2 billion Egypt, Egyptian diplomatic sources claim per year to uphold that pro-Western regime. that George W. Bush’s administration is By the mid-1980s, Congress and the U.S. more willing to formalize such an administration began to push for increased agreement.(61) Secretary of State Colin economic liberalization through foreign aid, Powell discussed a proposed FTA during his but this produced very limited results. With trip to Egypt in February 2001. Presumably the end of the Cold War, the United States the talks went well, considering that sought to reduce Egypt’s dependency on President Mubarak announced on March 1, economic aid and to liberalize Egypt’s 2001 that he would be going to Washington economy using a new policy of increasing to initialize a FTA with the United States in the amount of private investment in the the coming months.(62) However, despite country. This new strategy produced the initial Egyptian optimism, a FTA did not U.S.-Egypt Partnership, its Presidents’ arise from President Mubarak’s trip to Council, and several new trade agreements, Washington. According to Egyptian which may eventually culminate in a free government sources, the U.S. government trade agreement between the two countries. requested that Egypt immediately implement Promoting economic liberalization in Egypt the TRIPS agreement in order to protect U.S. has been productive. Egypt has shed many of pharmaceutical companies’ patent rights in its statist policies through currency Egypt. For fear of social unrest, particularly devaluation, increased privatization, trade following the revival of uprisings in the liberalization, better fiscal management, and Palestinian occupied territories, which increased foreign investment. produced sympathy rallies in the streets of Cairo, the Egyptian government declined to *Dr. Bessma Momani is an Adjunct sign the TRIPS agreement.(63) In a May Professor in the Department of Political 2003 speech to Egypt’s American Chamber Science at the University of Western Ontario, of Commerce, U.S. Ambassador to Egypt Canada. She is the author of a forthcoming David Welch added that customs reforms, article in Review of International Political liberalization of trade in textiles and the Economy, entitled “American Politicization removal of bans on some American meat of the IMF”, and currently working on products needed to be addressed.(64) examining Middle East economic integration Furthermore, in a June 2003 trip to the and Fund surveillance. Middle East, U.S. Trade Representative Robert Zoellick stated that, despite NOTES 96 Middle East Review of International Affairs, Vol. 7, No. 3 (September, 2003) Promoting Economic Liberalization in Egypt: From U.S. Foreign Aid to Trade and Investment
1. William Quandt, “American-Egyptian 10. White House, Office of the Press Relations,” American-Arab Affairs, Vol. 22, Secretary, “Background Briefing by Senior No.3 (Fall 1987), p. 2. Administration Official,” White House Press 2. Clyde Mark, “Egypt-United States Release, (October 25, 2:35 P.M. EDT. 1993), Relations,” CRS Issue Brief for Congress, p. 8. IB93087, 9 (February 9, 2001), p. 15. 11. U.S. GAO, “The U.S. Economic 3. U.S. Government Accounting Office Assistance Program for Egypt Poses a (GAO), Egypt’s Capacity to Absorb and Use Management Challenge for AID,” p. iii. Economic Assistance Effectively, September 12. U.S. GAO, “Egypt’s Capacity to Absorb 15, 1977, ID-77-33, (Washington DC: GPO, and Use Economic Assistance Effectively,” 1977), p. 1. p. 1. 4. U.S. Government Accounting Office 13. U.S. GAO, “The U.S. Economic (GAO), “The U.S. Economic Assistance Assistance Program for Egypt Poses a Program for Egypt Poses a Management Management Challenge for AID,” p. 9. Challenge for AID,” July 31, 1985, 15. U.S. GAO, “The U.S. Economic GAO/NSIAD-85-109, (Washington, DC: Assistance Program for Egypt Poses a GPO, 1985), p. 7. Management Challenge for AID,” p. 20. 5. William Quandt, The United States and 16. U.S. GAO, “The U.S. Economic Egypt: an Essay on Policy for the 1990s, Assistance Program for Egypt Poses a (Washington, DC: Brookings Institution Management Challenge for AID,” p. 10. Press, 1990), p. 33. 18. Zimmerman, Dollars, Diplomacy, and 6. Clyde Mark, “Egypt-United States Dependence, p. 83. Relations,” p. 11. 19. U.S. GAO, “The U.S. Economic 7. Department of State (DOS), “Briefing Assistance Program for Egypt Poses a Papers for Vice President’s Trip to Egypt,” Management Challenge for AID,” p. iii. Declassified Cables, (August 1994), p. 3. 20. See Heba Handoussa, “Fifteen Years of This document was acquired through the US Aid to Egypt: A Critical Review,” in Freedom of Information Act. Ibrahim M. Oweiss, ed., The Political 8. Gregory Aftandilian, Egypt’s Bid for Arab Economy of Contemporary Egypt, Leadership: Implications for U.S. Policy, (Washington, DC: Georgetown University (New York: Council on Foreign Relations Press, 1990), pp. 109-124. Press, 1993), p. 80. 21. See Bessma Momani “American 9. See Robert F. Zimmerman, Dollars, Politicization of the IMF” Review of Diplomacy, and Dependence: Dilemmas of International Political Economy, U.S. Economic Aid, (Boulder: Lynne (forthcoming), for a discussion of how the Rienner Publishers, 1993); James Phillips, U.S. government used its influence in the “Options for the U.S. as Egypt’s Time of IMF to ensure Egyptian economic reforms Reckoning Nears,” The Backgrounder, The were undertaken while keeping soft Heritage Foundation, Vol. 546, No. 10 conditionality. (November 1986), pp. 1-12; Alfred Atherton, 22. Edward Walker, “United States-Egyptian Egypt and U.S. Interests, (Washington, DC: Relations: Strengthening Our Partnership,” John Hopkins University, 1988); Gregory SAIS Review, Vol. 17, No. 1 (Winter-Spring Aftandilian, Egypt’s Bid for Arab 1997), pp. 147-62. Leadership: Implications for U.S. Policy, 23. For a description of changes in U.S. (New York: Council on Foreign Relations foreign aid, see Curt Tarnoff and Larry Press, 1993). Nowels, “Foreign Aid: An Introductory Overview of U.S. Programs and Policy,” Middle East Review of International Affairs, Vol. 7, No. 3 (September 2003) 97 Bessma Momani
CRS Issue Brief for Congress 98-916F, 31. U.S. CBO, “Enhancing US Security (April 6 2001), p. 9. Through Foreign Aid,” p. 67. 24. This was expressed officially in March 32. Clarke, “U.S. Security Assistance to 1992, when the Department of Defense Egypt and Israel: Politically Untouchable?” leaked a Pentagon report entitled ‘Defense p. 3. Planning Guidance’ to the New York Times 33. Select members of Congress also had that stated: “We [the United States] must vested interests in maintaining aid levels to account sufficiently for the interests of the Egypt because it was tied to contracts large industrial nations to discourage them benefiting their constituencies’ interests, from challenging our leadership or seeking to such as businesses, universities and U.S. overturn the established political or farmers. See Zimmerman, Dollars, economic order...we must maintain the Diplomacy, and Dependence: Dilemmas of mechanisms for deterring potential U.S. Economic Aid; Handoussa, “Fifteen competitors from even aspiring to a larger Years of US Aid to Egypt: A Critical regional or global role,” quoted from Review;” US GAO, “Foreign Assistance: Christopher Layne, “The Unipolar Illusion: AID Strategic Direction and Continued Why New Great Powers Will Rise,” Management Improvements Needed,” June International Security, Vol. 17, No. 4 GAO/T/NSIAD-93-106. (Washington, DC: (Spring 1993), p. 6. The document also GPO 1993), pp. 35-36. stated that “the United States should be 34. U.S. CBO, “Enhancing US Security postured [sic] to act independently when Through Foreign Aid,” p. 67. collective acts cannot be orchestrated,” 35. Congressional Research Service (CRS), quoted from Patrick Tyler, “US Strategy Plan “Regional Free Trade Partners and U.S. Calls for Insuring No Rivals Develop,” New Interests: What’s Next?” Report to Congress York Times, March 8 1992, p. A6. 95-392F, (March 13, 1995). 25. See Michael Mastanduno, “Economics 36. A good example of how this was to be and Security in Statecraft and Scholarship,” encouraged include changes made to the International Organization, Vol. 52, No. 4 economic aid program. Part of the economic (Autumn 1998), p. 844. assistance given to Egypt was earmarked for 26. See Institute for National Strategic the Commodity Import Program (CIP), Studies, “Strategic Assessment 1996: which required the Egyptian government to Instruments of US Power,” (Washington, use the funds to purchase commodities from DC: National Defense University, 1996), American government-owned enterprises Chapter 5. (such as garbage trucks, tractors and fire 27. See Duncan Clarke, “U.S. Security trucks). Congress later privatized the CIP by Assistance to Egypt and Israel: Politically making private sector commodities eligible Untouchable?” The Middle East Journal, under the program. Vol. 51, No. 2 (Spring 1997), pp. 1-21. 37. The White House, Office of the Press 28. As stated by a Congressional aide in a Secretary, “Background Briefing by Senior personal interview. Administration Official,” White House Press 29. See Clarke, “U.S. Security Assistance to Release, (October 25 1993, 2:35 P.M. EDT). Egypt and Israel: Politically Untouchable?” 38. Quoted in Business Monthly, “U.S. p. 10. Ambassador at AmCham Luncheon, Egypt is 30. U.S. Congressional Budget Office Open for Business,” (September 11, 1995), (CBO), “Enhancing US Security Through p. 47. Foreign Aid,” April, 1994, (Washington, 39. See CRS, “Regional Free Trade Partners DC: GPO 1994), p. xxi. and U.S. Interests: What’s Next?” 98 Middle East Review of International Affairs, Vol. 7, No. 3 (September, 2003) Promoting Economic Liberalization in Egypt: From U.S. Foreign Aid to Trade and Investment
40. Based on a personal interview with a White House Press Release, (March 10, former Congressional aide in March, 1999. 1997), p. 269. Also see The White House, Office of the 49. White House, Office of the Press Press Secretary, “Remarks by President Secretary, “President’s News Conference Clinton and President Mubarak to Press,” with President Hosni Mubarak of Egypt.” White House Press Release, (October 16 50. White House, Office of the Press 1994 1:35 P.M. EDT). Secretary, “Joint Statement Following 41. U.S. Embassy, “The U.S.-Egypt Meeting of Vice President Gore and Partnership for Economic Growth and President Mubarak,” White House Press Development,” (Cairo: US Embassy). Release, (March 28, 1997), p. 1.
57. “FTA Back in Focus” Al-Ahram Weekly Although Egypt is not considered a least- On-line, No. 520, (February 8-14 2001). developing country, as classified by the
100 Middle East Review of International Affairs, Vol. 7, No. 3 (September, 2003) Promoting Economic Liberalization in Egypt: From U.S. Foreign Aid to Trade and Investment
Appendix
Table 1: Composition of U.S. Foreign Aid to Egypt (in millions)(2)
Aid Type 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
Military 1500 550 1325 1175 1300 1300 1300 1300 1300 1300
Economic 835 829 750 1315 815 815 780 747 1113 815
Food 253 301 255 227 196 152 218 4 0 0
TOTAL 2588 1680 2330 2717 2311 2267 2298 2057 2413 2115
Middle East Review of International Affairs, Vol. 7, No. 3 (September 2003) 10 1