U.S. & Egypt Sign Investment Treaty

The United States concluded negotiations with Egypt recently on a "bilateral investment treaty," the first of its kind for the U.S. The treaty, yet to be approved by the U.S. Senate, marks the latest move by the Reagan Administration to aid U.S. multinationals abroad.

"Bilateral investment treaties provide the opportunity to encourage and facilitate even greater investment flows, particularly to developing countries," said U.S. trade representative William Brock on September 29.

Although the name of the treaty implies that investment will flow in both directions, in the case of the Egypt agreement, most of the investment will go one-way: from the U.S. to Egypt.

The primary purpose of the treaty is to "guarantee U.S. investment in the country," says Stuart Lynn, financial economist at the State Department. Egyptian investment in the U.S., Lynn points out, is "virtually nil" and the treaty will not change that fact.

The treaty is "one more step among others to promote private foreign investment in Egypt," says an official from the Egyptian embassy. The country has been trying to lure Western investment for some time. It's "bending over backwards to attract foreign capital," says Eric Davis, an Egypt scholar at Rutgers University.

One of the most striking features of the treaty is the provision which allows the free flow of capital and profits; a U.S. company investing in Egypt will be able to repatriate 100% of its profits. Most developing countries impose some restrictions on profit repatriation.

The Egyptian government is "very much concerned" about profit repatriation and loss of capital, says the embassy official, but it thinks "there can be no restrictions," otherwise investors would be scared away.

The treaty also grants U.S. investors most-favored-nations status: they will be treated no differently than Egyptian nationals. And the treaty cushions U.S. investors in the event of nationalization. It provides a "legal basis for arbitration" and assures firms of "prompt, adequate and effective compensation."

Egypt receives the second largest amount of U.S. foreign aid (Israel is first). This gives the U.S. "a fair bit of leverage" over Egyptian economic policies, explains Joe Stork, of the Middle East Research and Information Project. The U.S. government, and investors, can thus "get what they want" from Egypt, Stork says.

Currently, the Reagan Administration is trying to negotiate bilateral investment treaties with other countries as well. Panama is next in line. The treaty is finished, says Leon Vareala, a spokesperson for the Panamanian embassy.

Panama is a "logical country" for such a treaty, Vareala says. It is "not so chaotic as some other countries in Latin America, such as El Salvador, and it can serve as an example" in how to provide "confidence to investors."

- Shane Grady