Daily Israel Report

Report: Breaking Deal With Israel Could Cost Egypt $1 Billion

Breaking the Camp David Accords - and the trade deal with the US that came in its wake - could cost Egypt a billion dollars, and 70,000 jobs
By David Lev
First Publish: 9/13/2011, 9:15 PM

Egypt:
Egypt:
P.C.

While many Israelis are concerned over the fate of the Camp David Accords in the wake of last weekend's riot at the Israeli Embassy Cairo and the narrow escape of the Israeli diplomatic staff from the clutches of Egyptian rabble, another agreement is also at risk – and it is Egypt that has a great deal to lose if that deal falls apart. A poll by Israeli business data company BDI-COFACE says that Egypt stands to lose over a billion dollars if trade with Israel continues to dry up.

In 1996, the U.S. Congress authorized the creation of two Qualifying Industrial Zones – a sort of free trade zone for the manufacture of products to be exported to the U.S. The zones allow Egypt and Jordan to export products to the U.S., as long as the products in question contain “input” – components, ingredients, etc. - originating in Israel. Products exported from Jordan myst contain 8% inputs from Israel, while products exported from Egypt must contain at least 11.7% Israeli inputs, in order for the products to be imported into the U.S. without import duties and taxes.

The QIZ with Jordan has been active since 1996, and between that time and 2004, Jordanian trade with the U.S. has grown from about $15 million a year to over $1 billion a year. Egypt, realizing that it was missing out on a good thing, got on board with the U.S. program in 2004, finalizing the QIZ that was first authorized 8 years previously. Almost immediately, Egyptian trade with the U.S. blossomed. In 2004, before the QIZ came into effect, Egypt exported barely a million dollars worth of goods to the U.S.; by 2006, U.S.-Egypt trade exceeded $2 billion.

Because of the agreements, Israeli trade with Egypt and Jordan has grown in tandem – thus fulfilling the Congress' vision of trade being a stabilizing force in the Mideast. Over the past year Israeli trade with Egypt – which constitutes only a small percentage of Israeli foreign trade -  fell 18% from the 2009 totals, to only $78 million, while Israeli imports from Egypt fell 16%, to $137 million.

As much of Israel's exports to Egypt are value-added components for Egyptian exports to the U.S., the fall in Israeli exports was mirrored by less Egyptian exports to the U.S. If the trend continues, says BDI-COFACE, Egypt could lose as much as $1 billion in business with the U.S. - one of its biggest trading partners, which takes nearly 8% of Egypt's exports – and see some 70,000 jobs evaporate. The  dissolution of the QIZ would have a dramatically negative impact on Egypt's economy, while the Israeli economy would barely feel the change, the BDI-COFACE report concludes.

The figures on the QIZ agreement do not take into consideration what would happen if Egypt decided to renege on the Camp David Accords, and the U.S. retaliated by halting its annual $2 billion in foreign aid to Cairo – instituted only as a reward for the peace treaty with Israel.