LC ML, :53/5 ;2P£:#- 8) -:33 F- 81-l33F EGYPT AND THE UNITED STATES d’ E“ 5%» T If“ «'1 ~ T="‘ ‘ hi 5-3”- ' } _'-3,! “xtwlu E K’, '1' Li’; R .A- ‘‘-'| - ‘W K“: x ya ~» -. , . J J '».- J ‘.1 P .§,“x._ 3.4? P K "X if ’{~’ :{ h"J ‘:~ -‘E v§3-‘-') '7 ..L ‘''r:‘ it -“ .:;..‘.= i :2, »,- | A 1 t . Ellen B. Laipson na ° . Forzfi nlgfgiédle East aed North African Affairs 8 1rs and National Defense Division CONGRESSIONAL RESEARCH SERVICE THE LIBRARY OF CONGRESS June 4, 1981 JX 1428 For. Egypt nive si ||i| n1;IfI\‘1I”1Fi1'i;1\;‘i11i”iiiiiifI\»n llll 0386 5 » |||||l|T| 01 The Congressional Research Service works exclusively for the Congress, conducting research, analyzing legislation, and providing information at the request of committees, Meme bers, and their staffs. The Service makes such research available, without parti- san bias, in many forms including studies, reports, compila- tions, digests, and background briefings. Upon request. CRS assists committees in analyzing legislative proposals and issues, and in assessing the possible effects of these proposals and their alternatives. The Service’s senior specialists and subject analysts are also available for personal consultations in their respective fields of expertise. ABSTRACT In less than a decade, there has been a dramatic improvement in American relations With Egypt, the largest nation in the Arab world. Relations are expected to continue to expand in the political, economic, military and cultural realms. This report examines the nature and scope of the new and growing ties, outlines areas of concern for U.S. policy makers, and raises some questions about the direction and goals of American policies and pro- grams in Egypt. It also addresses Congress‘ role in forging the relationship with Egypt. A ""'* M Am-van ’ "Em MEDITERRANEAN SEA sr':::p~—\ ,' 9 occupotlb , '1‘, i I ° “° W SAUDI ...,.,,.¢ ARABIA F"'* 28 5° 2! """“ \\ flag: cl Fulinh “’‘'V'' ‘\ J Ilvhijnl .5‘ A! On: ." ‘(\- Io ‘M "'1 ' SEA 5 Nd: ‘o "’ bu lldl :8 —-’ Ami ""1 » . f--24 ‘nu. mg‘ 0“, ' \ . \ luau an ""1 At \ K . ( L k M: 0 e 39% \ '.J/ I‘ / ._ Iodnunmralvvo /K k \-x J ‘me 3" ‘ if __\ ‘ |II||'ii \\ . \ ‘\ '\ ‘fl 2 ~. \ { SUDAN , $ "'“'J 0 1 150 V :50 Mon:-Ion 2° gauged coniomnl Pronchon ' sc.'3.'a'3."u'oo'7.m' '"" " Boundaries and locations not necessarlly definitive. II. III. IV. CONTENTS ABSTRACT . . . . . . . . . . . . . . . . . . . . . . MAP . . . . . . . . . . . . . . . . . . . . . . OVERVIEW OF EGYPT AND THE UNITED STATES . . . . . MAJOR ASPECTS OF THE EGYPTIAN-AMERICAN RELATIONSHIP. A. Military/Strategic . . . . . . . . B. Political . . . . . . . . . . . . . - - - - - - C. Economic . . . . . . . . . . . . . - - FORGING AMERICAN POLICY TOWARDS EGYPT . . - - - - - A. Emphasis on Continuity . . . . . . . - - B. Lowered U.S. Profile. . . . . . . - - - - - ' ° C. New American Focus on Security - - ° ' ' THE ROLE OF CONGRESS . . . . . ... - APPENDIX: U.S. Assistance to Egypt. 1970‘1932 - - iii iv 11 17 25 26 26 28 29 32 I. Overview of Egypt and the United States In less than a decade, there has been a dramatic improvement in American relations with the largest nation of the Arab world, Egypt. Since the 1973 Arab-Israeli war, American-Egyptian relations have evolved from the limited and frequently contentious contacts of the cold war years to a broadly based association publicly celebrated by both nations. It has been said in the recent past that relations with Egypt are an alliance in all but name, and that American-Egyptian ties are often warmer than those between the United States and some of its NATO allies. The relations have developed rapidly and are expected to continue expanding in political: €C0n0miC: military and cultural realms. Until the mid-seventies, Egypt was considered a Soviet client, largely dependent on the Soviet Union for financial and military assistance. It was politically active in forums of the non-aligned movement, the Arab world, and newly emerging African states. Under President Nasir, Wh0 ruled E8YPt fr0m 1952 to his death in 1970, U.S.-Egyptian relations were strained. The Eisenhower administration sought to participate in the eC°n°miC d9Ve1°Pm€nt plans of Egypt, but when American assistance for the ambitious Aswan Dam project was denied, Nasir nationalized the Suez Canal Company to use canal revenues to pay for Aswan. The resulting unsuccessful Anglo-French-Israeli attack on the Suez Canal in 1956 was condemned bY the United States: but E8YPt had begun to look to the East increasingly for its support. Evidently, in Nasir's mind, the United States was identified with the former colonial powers, Great Britain and France, and as Israel's protector. Nasir was also strongly supportive of other Arab revolutionary regimes, including Algeria, Syria and Iraq, many of which established overtly anti-American foreign CRS-2 policies. By the Six Day war of 1967, American-Egyptian ties were broken, to be restored in 1974. Upon his succession to the presidency in 1970, Anwar Sadat sought to consolidate his domestic power base by maintaining Nasirist policies. This included the signing of a 15-year Friendship and Cooperation agreement with the Soviet Union. Within a year, however, Sadat embarked on a new course for Egypt. Discontented with Egypt's poor economic performance and with both the quality and quantity of Soviet arms and economic aid, Sadat expelled several thousand Soviet military and technical advisers in July 1972. The October 1973 attack on Israel signalled, among other things, Sadat's need to refocus the attention of the newly conciliatory superpowers on the Middle East and to reassert an Egyptian role as leader of the Arab world. Despite the mas- sive U.S. resupply of Israel, Sadat maintained diplomatic contact throughout the war with American Secretary of State Henry Kissinger. The United States was the predominant force in efforts taken after the October 1973 war to separate the belligerents in the Sinai desert and to fashion a politically acceptable settlement. From the outset of what came to be known as the step by step process, Sadat was convinced that the all- important issues of Arab-Israeli peace and economic prosperity were linked in several ways. This led to increased cooperation with American-led peace intiatives, including the signing of two Sinai disengagement agreements by Egypt and Israel, Sadat's own precedent-setting 1977 trip to Jerusalem, and the Egyptian-Israeli peace treaty signed in Washington, D.C. in March 1979. Meanwhile, the United States launched a large-scale economic assistance pro- gram for Egypt and by 1979, U.S.-Egyptian military cooperation had begun. For the United States, the warming of relations with Egypt was bene- ficial in several respects, including its contribution to the success of ’ CRS-3 U.S. diplomatic efforts in the Middle East. American policy objectives relating to the peace and stability of the region and the security of Israel have been enhanced by the development of close relations with Egypt. Egypt‘s strategic location and comon attitude toward security issues in the Persian Gulf have strengthened American regional strategic capabilities. The U.S; commitment to contribute significantly to Egypt's difficult and ambitious eco- nomic plans is consistent with a world~wide American policy of participating in Third World development, although the aid program is justified in political terms, permitting Egypt to receive a larger share of total U.S. foreign aid than might otherwise be possible using purely economic criteria- There are those who caution that the rapid expansion ofU.S.-Egyptian relations exposes both nations to certain problems. Despite the consensus on major goals -- strategic, political and economic " diffeTenCe3 h8Vé arisen over the tactics to be used to achieve those goals- Some Warn that the level of expectation between Egyptians and Americans is too high, and that disap— pointments are inevitable. Others are concerned about the nature of the emerging partnership; is Egypt becoming a new American client, excessively dependent on American aid yet resentful of the political costs of Such Visible association? From a U.S. standpoint, will Egypt, with its awesome economic problems and isolation in the Arab world, become more ofia liability than an asset? Is American aid, with its cumbersome delivery and modest early results, denying Sadat the peace dividend that motivated him to join the peace process? Has the relationship already contributed to a P013ri33ti°n Of the Middle Eflfits pitting the United States, Egypt, and Israel, against other regional powers? This report examines the nature and scope of the new and growing ties between Egypt and the United States. It describes the multiple aspects of CRS-4 the relationship, outlines areas of concern for U.S. policymakers, and raises some questions about the directions and goals of American policies and programs in Egypt.r It also addresses the role of Congress in forging the developing relationship with Egypt.» CRS-5 II. Major Aspects of the Egyptian-American Relationship A. Military/Strategic Egypt forms the northeast corner of the African continent, and links Africa to Asia. Within the Arab world, it is known as the land bridge between the Mashreq (Arabic word for east) and the Maghreb (Arabic word for west). With the Mediterranean to the north, the Nile River its vital north-south artery, and the Suez Canal linking it to the Red Sea and the Indian Ocean, Egypt's geography alone makes it strategically important. In human resources, Egypt is the largest and most powerful state in the region. It has the largest standing army in the Arab W0r1da With 357,000 men at arms, and an annual defense budget of over $2 billion. 1/ Its €qUiPm€nt is still predominantly of Soviet origin and designs much 0f it in need Of teP8ir» but the quality and morale of Egyptian troops, as demonstrated by their Perfor‘ mance in the October 1973 war, is generally rated quite high- It is Often Said that since the peace treaty signed with Israel in 1979, the removal of Egypt as a confrontation state substantially reduces the Pt°3PeCtS Of another Arab’ Israeli war because combinations of Arab forces excluding Egypt are severely disadvantaged, tipping the balance in Israel's favor- Egypt's main military efforts address the growing Soviet influence in the region and problems relating to Libya and Sudan. Libya is seen as a potential threat or source of subversion. The armies of Sadat and LibY3'S C010U€1 Qadhafi clashed in the summer of 1977 over a border dispute. In the case of Sudan, linked critically to Egypt by the Nile River, Egypt considers itself a protector 1/ The Military Balance, 1980-81. International Institute for Strategic Studies, London, 1980. CRS-6 of the relatively weaker state led by Jafa'ar Nimeiri. Sudan is perceived as vulnerable to possible threats from Libya, Ethiopia, or internal unrest. In addition, despite the peace treaty, Egyptian military planners still factor Israeli capabilities in assessing Egypt's readiness requirements. 2] Egyptian priorities for military improvement focus on refurbishing obso- lete equipment and on acquiring more sophisticated aircraft, including F-16 fighter-interceptors and airborne early warning aircraft, frigates for Red Sea patrols, and a more advanced line of tanks, presumably for stationing along the western border with Libya. At present, the United States is the principal supplier; Egypt also purchases arms from Great Britain and France. An Arab Organization for Industrialization, set up in 1975 for Egyptian arms production, was terminated by its Persian Gulf benefactors after the peace treaty in 1979. Egypt has since sought alternative financing to continue its local manufacturing effort. The broad strategic goals of the United States and Egypt are parallel; both seek to limit Soviet presence and influence in the region, and both want readily available forces to combat any threats to regional security, from external or internal sources. These common views have Permitted the estab- lishment of a military supply relationship and a broad strategic dialogue. American aid to Egypt was resumed in 1974 when U.S. funds were provided to clear the Suez Canal, which re-opened in June 1975. The aid program grew most dramatically after 1978, and in 1979, military aid was included. The current assistance program in Egypt includes Foreign Military Sales (FMS) 2/ U.S. Congress. House. Committee on Foreign Affairs. U.S. Security Interests in the Persian Gulf. Committee Print, 97th Cong., lst session, March, 1981. Washington, U.S. Govt. Print. Off., 1981. p. 66. CRS-7 financing, International Military Education and Training (IMET), and Economic Support Fund (ESF) assistance. §] FMS for fiscal year 1981 is estimated to be $550 million and is proposed at $900 million for fiscal year 1982. The weapons systems and related services the Egyptians are interested in purchasing exceed these levels. FMS has. generally been used for aircraft procurement and maintenance, primarily for F-4, F-5 and F-16 fighter aircraft. During an APri1 1931 Visit °f the E8YPti8fl Defense Minister in Washington, Egypt requested prompter deliveries of already purchased systems, additional purchases, and new FMS fin3nCin8 based On the perception that threats from the Soviet Union and Libya are increasing. IMET funds totalling under $1 million annually have been programmed for leadership and management courses. Approximately 60 EgYPti3n3 are Scheduled t° benefit from IMET funded courses in fiscal year 1931- In addition to purchasing American W€aP0nS 3Y3tem3 and trainings Egypt has set as a major priority the refurbishing of Soviet-supP1i€d eq“iPm9nt- American technical assistance has been involved in helping adapt the indig- enous arms manufacturing industry to Pf°duCin8 3P3re Parts f°r the increas’ ingly obsolete Soviet supplies. The decision to convert old and used material is based on financial constraints, and is supP0rted by AmeriC3n military officials. In December 1979, a new facet of American'E8YPti3n military C°°Per3ti°n was introduced when a squadron of American F-4s began an extended joint exer- cise with their Egyptian counterparts at several sites in Egypt. The action, and a follow-up visit in 1980, have satisfactorily proven to both nations that 3/ ESF programs, administered by the Agency for International Development, will be discussed in the section of this chapter dealing with economic issues. CRS-8 close coordination is possible. The apprehensions based on what Egyptians viewed as the excessive and imposing Soviet military presence of the previous decade have to date proven unfounded with respect to their new military asso- ciates, the Americans. Future joint exercises are anticipated. The potentially contentious issues in the bilateral military relationship include delivery schedules, quantities of weapons to be sold, and the American willingness to sell certain advanced systems to Egypt. Because the resumption of military ties occurred in the context of the peace treaty with Israel and was fashioned in a Supplemental Assistance package exclusively for the two former belligerents, Egypt has on occasion compared its aid program to Israel's and requested terms and conditions along the lines of Israel's. This has caused some strain in the dialogue, although there has been a clear trend toward providing Egypt with the most favorable financing terms available to any recipients of U.S. aid. Differences over the size and scope of the bilateral military contacts sur- faced in 1980 and have not been resolved. Egypt is one of the regional states that has been approached by American military planners seeking expanded base rights and access to facilities to strengthen American capabilities in the Horn of Africa and Persian Gulf. Sadat has made clear that Egypt will accept an American presence that is small, temporary, and away from population centers. It will sign no formal access agreement, and will accept no permanent American base. The United States has selected Ras Banas, diagonally across the Red Sea from Jiddah, Saudi Arabia, as the optimal location for an American base or depot in Egypt, and has also considered Cairo west, Qena, the Sinai airbases and other Egyptian sites for possible use by American forces, although critics point out that Egypt's poor relations with the peninsula states may impede or prevent effective use of Egyptian sites for a Persian Gulf intervention. It CRS-9 is estimated that it will take at least $250 million to make Ras Banas ser- viceable for American purposes. Egypt will accept the American funding, but would consider any facilities that are built Egyptian. There are ongoing discussions about the future uses and functions of the site; during Defense Minister Ghazala's trip to Washington in April 1981, there was speculation that the two countries were close to an agreement on Ras Banas that could be formalized by an exchange of letters prior to Sadat's anticipated visit to the United States in the summer of 1981. ff Preliminary consideration of a Sinai peace-keeping force to be estab- lished in March 1982, and the U.S. role in it, provoked another divergence of views in late 1980 and early 1981. Egypt, Sen8itiVe to Outside Perceptions that the Sinai be returned to Egyptian sovereignty, not another occupier, sought to limit American participation in What Was intended t0 be 8 multi' national force. By spring 1981, however, with U-N- inV01VemeHt Virtually ruled out by Soviet intention to veto, Egypt ePPeeTed t0 be Willing t0 eeeept American troops as a significant part of the Sinai force. There is sPeCU18ti0n that Americans could number as many as half of the expected force of 2,000 - 5,000. 2/ Egyptian participation in possible western allied contingency plans in the Gulf area is another item on the military agenda. It is clear that Egypt and the United States see a role for the Egyptian military in Middle Eastern security arrangements, but joint troop maneuvers contemplating activities outside Egypt appear unlikely. It is said that based on the costly experience of Nasir's army in North Yemen in the early 60s, Egyptians are reluctant to flj Washington Post, April 30; 1931- 2] Washington Post, May 21, 1981- CRS-10 deploy troops far beyond their borders. Some anaylsts think that Egypt might assume primary responsibility for dealing with certain crises close to their borders with Libya or Sudan, the United States with others. The objectives would be complementary and supportive, but actual planning would be kept separate. Egypt has provided pilots and advisors to the Sultanate of Oman, a regional state already receiving increased American aid in exchange for its active cooperation with U.S. policy. Another area under consideration for Egyptian-American cooperation is in weapons production. This, too, provides for promising opportunities as well as frictions in relations. Currently under serious consideration are plans to co-produce armored personnel carriers, amunition, artillery rounds, and some bomb components. The Egyptians, again looking to U.S. military cooperation with their Israeli neighbors as a model, may be interested in more advanced programs, including aircraft production. To date, there is, reportedly, some resistance to such coproduction plans for Egypt or other nations in parts of the American defense establishment. CRS-ll, B. Political Since the mid—seventies, Egypt and the United States have enjoyed cordial political relations. The first American President to visit Egypt, Richard Nixon, was received with unexpected enthusiasm by the people of Cairo and Alexandria in June 1974. There have been repeated high level visits between the two nations since then, and on frequent occasions Egypt and the United States have been associated with common positions 00 3 variety Of World issues, including responses to the Soviet invasion of Afghanistan and other areas of mutual concern. For the United States, close and cordial relations with Egypt provide a link to the heartland of the Arab Middle East. The eSS0Ci3ti°“ Of E8YPt With the United States, and the expulsion of the 30Viet U310“ that Preceded the improvement of Egyptian-American ties, are generally Seen as 3 Significant po1itiea1 gain for the United states, enhancing its influence in the region. For the United states, Sadat is a pro-western, moderate statesman of a po- litically significant though poor Arab nation. His strong 3nti‘C0mmUniSm and anti-Sovietism dovetails with current American thinking about concerns and interests in the region. He has been outsp0ken in his SUPP0rt fer Afghan rebels confronting Soviet occupation, and has Pr°Vided aid t0 rebels based in Pakistan, He has also supported anti—Soviet forces in Somalia and factions in Chad that are opposed to the Libyan-backed government in Ndjamena. 2] Sadat's support for limiting government's role in economic activity and for expanding democratic participation in his country also draws Egypt closer to the United States. While Egypt is overwhelmingly Moslem in population, 6/ See, for example, remarks by Defense Minister Kamal Hasan Ali, as reported by MENA, March 16, 1981. CRS-12 its public institutions are secular and religious tolerance for the Christian minority (about 10 percent are Copts) is highly valued. These factors combine to facilitate and encourage the strong political ties between Egypt and the United States. Egypt has traditionally been viewed as the heart of the Arab world, as the center of Arab learning, comerce, culture and politics. Students from all over the Arab world have come to Cairo's universities, and the major po- litical and trade forums of the region have had their headquarters in Egypt's capital. Therefore, non-Middle Eastern nations, including the major world powers, have long seen Egypt as pivotal to effective presence and influence in the region. Nonetheless, the close political association has certain drawbacks for both parties. In recent years, Egypt's preeminence has diminished, in part because of the redistribution of power among Arab States as a result of oil wealth, and in part because of the regional reactions to the peace treaty with Israel. Egypt has suffered a loss of status with the removal of the Arab League from Cairo to Tunis. But the widely discussed isolation of Egypt by its neighbors as a result of their disapproval of the peace treaty may be exaggerated, since Cairo's comercial and cultural life remains central to the Arab world, and Egyptians are still integrated into the region through" migrant labor and the technical services they provide in many Gulf states. Relations are slowly and quietly resuming on an official level between Egypt and the major regional states, including Saudi Arabia and Iraq. 1/ In this 7/ In April, 1981, Sadat announced that he was shipping parts and ammuni- tion_to Iraq for its war with Iran, and relations with Sudan were restored. Sadat stated his strong support for U.S. weapons sales to Saudi Arabia, and media treatment of Egypt in the Gulf states was noticeably more conciliatory. CRS-13 way, the political cost of the peace treaty to Egypt, and indirectly to the United States, may not be as large as originally thought. It is in the context of efforts to resolve the thirty-year old Arab- Israeli conflict that relations with Egypt have taken on the greatest politi- ical significance to the United States. Beginning in the immediate aftermath of the October 1973 war, when Secretary of State Kissinger started consulting closely and often with President Sadat, Egypt Sh0Wed s Willingness t0 esme t0 a negotiated settlement with Israel along lines supported by the United States. This permitted an entirely new dialogue with EgYPt and e redefinition cf cemmen goals and concerns in the region. It may be too early to judge the long-term effects on Egypt and Israel of the peace treaty signed in 1979; too early because the imP1ementsti°n PTOCESS is still underway and because the desired extension of the process to include others of the belligerents has not yet 0CCUrred- But the success cf Camp David and the peace treaty has unquestionably brought short-term political benefits to the United States and Egypt, Pr0Vidin8 the mejcr fcundaticn for the expansion of bilateral ties. The Peace tteety has reduced greatly the chances for another Arab-Israeli war and has permitted s degree cf inter‘ action, contact, and mutual cooperation between the two former adversaries. The pe1itiee1 benefits for Egypt are its increased security, the stature and prestige accorded it outside its region for its statesmanship and peacemaking, and the resulting protection and attention of the American superpower. For the United States, the political benefits are global in scope, since Soviet influence in the critical region has been reduced and since it can rightfully claim, in the peace treaty, the success of its mediation efforts in the inte- rests of wor1d peace and stability. In addition, the United States, as major aid donor and principal benefactor of Israel, gains by the added security the treaty brings to that country. CRS-14 As a consequence of the treaty, Egypt was ostracized by most of its Arab neighbors, and the United States has been exposed by association to some of the adverse regional consequences. Some would say that a solution to the Arab—Israeli conflict that does not provide for Palestinian self-determina- tion is doomed, and that the U.S.-led initiative has created a division in the region between Egypt and its former Arab friends and allies, including the major oil producing states. The treaty did temporarily create a new and broad consensus among Arab states opposing it, bringing together nations with wide ideological differences on other matters, such as the conservative Saudi monarchy and the Ba'ath socialist state of Iraq. This polarization, regard- less of American responsiblity, was viewed by many as contrary to the American goals of peace and security for Israel and its neighbors and for other American interests in the region, including continued access to oil supplies and the prevention of increased Soviet influence. Some believe that the failure to produce the comprehensive peace implicit in the Camp David formula has re- sulted in a loss of U.S. prestige and influence among other regional powers, notably Jordan and Saudi Arabia. §j Egypt, too, has taken risks in joining the American—sponsored peace process. Internally, it may be too early to assess the ultimate cost of the policy; if Sadat is unable to deliver the improved welfare that he promised would come from peace, he may face increased opposition at home. The primary danger to Sadat's domestic position could come from an alliance of convenience between the economically disadvantaged and the fundamentalist Moslem groups, who are ideologically opposed to close ties with the United 8/ See, for example, Robert Springborg. U.S. Policy Toward Egypt: Problems and Prospects, Orbis, Winter 1981. CRS-15 States. To date, such a convergence of interests has not occurred, but some analysts consider the membership in and activity of such Moslem groups to be on the rise in Egypt. In foreign policy terms, the initial damage caused to Egypt may be diminishing. In the two years since the treaty, Egypt's growing con- tacts with such anti-Camp David states as Saudi Arabia and Iraq may signal an end to its regional isolation. This is due, in part, to other dynamics in the region. The war between Iran and Iraq that began in September 1980 has added a new dimension to the frequently shifting inter'Arab a11iaUC€S- AS Arab States have chosen sides in the Persian Gulf war, the anti—Egyptian consensus began to weaken. The peace treaty and Egypt's ties with Israel cannot be viewed as a major source of Middle Eastern instability. Other priorities, including efforts to Create a stronger anti-Soviet front in the aftermath of Afghanistan and common concerns about Libyan foreign policy goals, have also helped Sadat to begin to bridge the gap with some of his Arab neighbors. There are other political risks to which Egypt and the United States are exposed, as a consequence of their close political ties. With its highly visible presence in Egypt, including the extensive aid program and frequent publicly applauded official visits, the United States risks drawing adverse attention to the bilateral ties, making it harder for Sadat t0 PTOVB t0 his people that he is not an American client. Some be1ieVe aHti‘Am€riC3“i5m C0 be as potent a force in the Third World as anti-Soviet sentiment. Thus, the character and scale of American presence in Egypt may not be in Sadat's interest or in that of the United States. Some observers have drawn an analogy between U.S. relations with the late Shah of Iran and with Sadat. They point to political ties that are highly personalized, depending on Sadat's close relations with U.S. leaders. CRS-16 They believe that as a result, U.S. policy is too heavily focused on the for- tunes of the ruler, and fails to establish institutional relations between agencies and departments of the respective governments. Relations, as in the case of Iran, also include a large military component, stressing the common strategic and political concerns of the United States and its Middle Eastern partner, and including extensive arms sales. Yet most dispute that Sadat's domestic situation today is comparable to that of the Shah's at the height of U.S.-Iranian relations; Sadat is considerably more popular and is generally believed to have the support of the vast majority of his people. Some would also say that with the peace treaty, Sadat has proven to be a cooperative and responsive regional partner, and the dialogue developing with Egypt surpasses that with Iran in intensity and effectiveness. Sadat's government and style of rule are highly personalized. It is presumed that Vice President Mubarak, who would succeed Sadat according to the provisions of the 1971 Constitution, has essentially been designated heir apparent by Sadat. Mubarak does not have the charismatic appeal of Sadat and, as a loyal career military officer, has not had an opportunity to develop a political base of support or a national constituency. This may lead to some uncertainty and provide oppotunities for a radical upheaval in the power struc- ture once Sadat is no longer in command. U.S. policy-makers see Sadat as a leader who is trying to develop strong democratic institutions and an orderly succession process in a system that has essentially been dominated by the mil- itary since 1952. But while the succession process in Egypt is prescribed by the Constitution, the United States must be concerned by the element of uncertainty that surrounds it and by the possibility of future political in- stability that could jeopardize U.S. interests. CRS-17 C. Economic The economic ties between Egypt and the United States are longstanding; commercial relations date back to the early years of the twentieth century and American assistance to Egypt predates the recent expansion of bilateral ties, Today, economic links are extensive; aid disbursements total nearly $1 billion per year and U.S. exports to Egypt are Valued at C1089 to $2 billion annually. American investment in the oil sector far exceeds investment in other sectors of the Egyptian economy, where American involvement lags behind that of other OECD countries, while some observers see the U.S. economic role in Egypt as a stabilizing influence, others are concerned that Egypt's grave economic problems may tie the United States down in 8 C0St1Y re13ti°“ShiP that C0U1d produce serious frictions with the Egyptian government and cause other adverse consequences for the United States. Egypt's economic problems are awesome; the major development issues are its high population growth rate (close to 3 percent), its limited arable land and natural resources, and chronic government inefficiency in administering and managing economic activity (including heavy reliance on the public Sector and on the use of extensive subsidies for commodities, foodstuffs, and energy). The per eapita income of its 42 million inhabitants was $460 in 1979. The United States government first became involved in post-October 1973 war re- Construction, and 1ater in a large variety of efforts to reform the economy and improve the welfare of Egypt's citizens. The United States currently provides more economic aid to Egypt than to any other nation, and 40 percent of its food aid through Title I of the Food for Peace program (P.L. 480) goes to Egypt. The Agency for International Development (AID) operation in Egypt is the largest in the world, with over 100 persons at the Cairo mission. CRS-18 In general, the United States and Egypt concur on the broad guidelines for the reform of Egypt's economy. Sadat and successive American administra- tions also agree on the linkage between internal and regional prospects for stability and economic efforts. In 1971, Sadat introduced political and economic reforms; his motivation to move from Soviet to American aid was based on his belief that American aid could contribute more effectively to the achievement of both economic and noneconomic goals. The United States considered investing in Egypt's economic well-being as related to American goals of strengthening the stable and moderate governments of the region in the interests of peace. But differences over policy choices, the means to achieve the desired objectives, are already evident and are likely to con- tinue. The Egypgian strategy for reforming its troubled economy was first articulated in Sadat's 1974 Infitah (Arabic for opening up) policy. Infitah and its associated political objectives orient Egypt away from an intense, inwardly focused nationalism to a more integrated internationalist outlook that includes closer ties with the West, stimulation of the private sector, and a general decentralization of political and economic activity. 2] The approach has been superficially likened to the Reagan economic strategy, taking short-term risks in equity and welfare in the interests of long-term growth in productive economic sectors. Riots that erupted when Sadat attempted to lift bread subsidies in 1977 suggest that Egypt's leaders must move very cautiously in implementing this policy. The process of broadening the role of the private sector entails reforms in exchange rates, interest rates, tax rates, and incentives for foreign 9/ Donald S. Brown. Egypt and the U.S.: Collaborators in Economic Development, Middle East Journal, Winter 1981, p. 3. CRS-19 investment, many of which have been only slowly put in place. In addition, the process has been inhibited by inflation, the poor quality of infrastruc- ture as a result of four wars and the spending priorities of the sixties which emphasized large-sacle industry, and the lack of necessary tools and skills. To date, the Infitah policy has offered more to bankers than to manufacturers, and has not created the number of new jobs originally intended. The upper middle class entrepreneurs who have profited from the policy are popularly referred to as the Infitah class, and they constitute one major source of Sadat's political support. The Egyptian GNP has been growing by an average rate of 8 percent per year since 1976, after a decade of stagnation. Egypt's economy has been relatively free of the chronic foreign exchange Shettege that Plagues many overpopulated developing economies. Egypt has developed several major sources of foreign exchange through Suez Canal revenues (approaching $1 billion per year), oil exports (1980 earnings totalled $2-9 billion): remittances frem overseas workers (in 1980, $2.7 billion), tourism (eVet38iU8 $600 milliefi annually), and foreign aid, mainly from the United States. lg] This means that Egypt's balance of payments situation is increasingly manageable, and that it can import the necessary raw materials and manufactured goods to pro- mote domestic industry. But in fact, much of the foreign exchange earnings have been used to import consumer goods, and bureaucratic and absorptive capacity problems may impede channeling the available capital resources to their most productive use. 10/ U.S. economic aid to Egypt is approximately $1 billion per year. Other_donors include multilateral groups (World Bank, International Develop- ment Association, EC) and Japan, West Germany, and France. Combined, their aid is close to $1 billion annually. CRS-20 The American aid program in Egypt in the post-1973 war period has evolved from a short-term reconstruction effort to a broadly defined role in Egypt's development Plans into the 1980s. The aid is allocated primarily through the Economic Support Fund (ESF) category in the U.S. foreign aid program. ESF goals are defined in a political context: seeking to foster internal sta- bility, to help maintain the moderate government in power, and to strengthen the bilateral ties with the United States. In general, the American objec- tive is to create a climate conducive to peace, and this entails trying to improve the quality of life and welfare of the Egyptian populace. From 1975- 1980, Egypt received $4.2 billion in ESF assistance and an additional $1.2 billion under the Food for Peace program. The main vehicles for American aid are the Commodity Import Program (CIP), totalling about one third of the $750 million ESF program, which provides cap- ital for Egypt to purchase needed American goods and services, and direct project aid. The U.S.-sponsored projects address a wide variety of develop- ment goals, from rebuilding public infrastructure, improving industrial tech- nology, expanding the private sector, increasing agricultural productivity, and decentralizing development decision-making. The human services projects focus on family planning, primary education, and health and hygiene. By and large, the underlying premise of American aid projects in Egypt is that Egyptians must be the responsible managers and implementors of the projects. This philosophy has resulted in some cumbersome implementation procedures, as Egyptian personnel are integrated into program management, and in some loss of control by AID of the projects it finances or co-finances. The AID program in Egypt has been subject to careful scrutiny and criti- cism in Congress, in the press, and in the academic community. One major CRS-21 concern is the poor absorptive capacity of Egypt; there is currently over $2 billion in the aid pipeline, that is funds that have been authorized and appropriated, but not yet delivered, in part because of U.S. bidding prac- tices, but primarily as a result of long delays in Egyptian decision-making on contract bids and constraints in Egypt's capacity to initiate and implement new projects in both the industrial and agricultural sectors. Among economic policy differences, American experts are perhaps most concerned about price distortions caused by subsidies for major commodities, foodstuffs, and energy. Some feel that Egypt cannot be put on a sound eco- nomic footing until the politically sensitive price support system is at least partially dismantled. Of the issues in which there is a direct American role via project aid, the population problem ranks high for American development experts. Many feel that the Egyptian government has not allocated sufficient resources or placed high enough priority on lowering the birth rate as an essential development goal. Others suggest that at the highest levels, Egyptian officials do concur with the American view, but the lack of progress is attributed to ineffective program implementation by Egyptian bureaucrats, and by the cultural resistance of the rural and traditional population. Land use policy is another source of disagreement between American and Egyptian economists both in and out of government. Egypt has shown a prefer- ence for desert reclamation projects, trying to convert arid land to arable for food production. Among American experts, the consensus appears to be that Egypt should focus more on making its arable acreage more productive, and that land reclamation in the 90 percent of Egypt that is desert holds little promise for success at a reasonable cost. They acknowledge, however, that land re- clamation is an historic and politically popular issue for Egyptians despite CRS-22 its economic shortcomings. Agricultural reform efforts in Egypt and American programs in that sector have also been criticized for contracting delays, insufficient Egyptian support, inadequate AID monitoring, and lack of staff and expertise among U.S. contractors. ll] In Egypt as elsewhere in the developing world, American (and Soviet) failings are subject to ridicule; it has become commonplace in Egypt to crit- icize the highly visible features of American aid, including a fleet of mal- functioning buses in Cairo. Thus some believe that the United States should find ways of limiting its exposure not only to disparagement in the host cul- ture, but to a broader credibility problem in the eyes of other aid recipients. The American aid programs have been called into question within Egypt for allegedly creating -- albeit inadvertently -- a new group of bourgeois benefic- iaries. To date, among those whose lives have been most directly affected by the American aid program have been middle class technocrats and professionals who are employed on a contract basis by AID. The most immediate rewards of the large programs appear to go to well-educated, urban aid deliverers, not the ultimate user, the Egyptian peasant or impoverished city dweller. Some educated Egyptians and American observers lack confidence in the ultimate effectiveness of American aid if it becomes associated with the relatively affluent and with Sadat's entourage. Opponents of the regime, including Moslem fundamentalist groups, may exploit this feature of the aid relation- ship in promoting anti-American sentiments. Private investment is a high priority for Egypt's economic reformers, and the U.S. Government has expended extensive efforts to facilitate American business ventures in Egypt, delegating personnel in the Trade Representative's ll] Report of the Comptroller General, "U.S. Assistance to Egyptian Agriculture: Slow Progress After Five Years," March 16, 1981. pp. i-iv. CRS-23 office to coordinate the functions of OPIC (Overseas Private Investment Corporation), Commerce, State and AID for businessmen. But the results to date have been disappointing, since Egypt is still viewed as an uncertain investment prospect. American businessmen have explored opportunities in petroleum technology, banking, tourism, and consulting services; but have. done little in long-term capital investments, labor-intensive fields, or agri-business, which would complement more directly the economic goals of the public sector, including the development of export oriented industry. In 1979, American firms were distressed to lose a $1-3 billion Contract for the renovation of Egypt's telephone system to a consortium of European firms. The Americans incorrectly presumed that theY w°“1d get Preferential treatment because there was American participation in the feasiblity studies that pre- ceded the contract, but they were outbid by the EuroPe8nS- The misunder- standing over this major telecommunications contract may have contributed to the cautious mood among American investors contemplating doing business in Egypt. lg] Other factors contributing to investor caution include exist- ing Arab sanctions against Egypt and fear of their intensification, uncertain world economic conditions, and doubts about E8YPt'3 1°n8’teTm eeenemie end political prospects. potentia1 eonf1iets between public sector and private sector interests on the American side may cause some strain in the bilateral relationship. Officially, the United states seeks to expand business activity in Egypt. Yet the role of the AID mission may not always support the interests of cer- tain American businessmen, whose imported Preduete may be Viewed 83 an un- productive use of Egypt's capital resources. There may be trade-offs between 12/ Middle East Executive Reports, March 1981, p. 26-27. ens-24 the interests of an American firm wishing to trade in Egypt and those of of- ficials trying to encourage certain economic reform policies. Some feel that greater coordination between trade and economic development officials in the U.S. Government could lead to a more unified and coherent policy, but others see these conflicts as irreconcilable. Many do not consider these trade-offs as a major impediment to U.S. economic policy in Egypt. In general, economic activity in Egypt in the past five years has been stimulated by new policies and new sources of foreign exchange. But struc- tural problems are enormous, and the demands placed on available resources grow rapidly with population increases. American participation in Egypt's economic future provides for no easy solutions and will undoubtedly introduce new frictions and conflicts in the bilateral relationship. For some, American association with Egypt's reform efforts, well-intended and enthusiastically implemented as a by-product of peace, may lead the United States into an unfavorable relationship with a financially dependent yet politically willful client state. If Egypt's economic problems persist into the future despite massive U.S. assistance, this association could contribute to an overall loss of American effectiveness in the region. In addition, the current high levels of U.S. aid may be difficult to sustain. U.S. taxpayer and consumer groups might argue that the large amounts of aid given primarily for political purposes cannot be justified in the context of severe budget cutbacks in domestic programs and services. Some observers of the official bilateral economic relationship say that the dialogue is not sufficiently developed to permit a comprehensive and conclusive airing of views. Instead, despite the cordial political relations, it appears that there is room for misunderstanding and poor communication between the two states over economic matters of common concern. CRS-25 IV. Forging American Policy Toward Egypt The extensive cordial ties between Egypt and the United States are of recent vintage, and have not yet become entrenched in institutional or bureau- cratic procedures. In many ways, the nature and character of the relationship is being formulated on an ad hoc basis. As new issues and programs evolve, appropriate procedures are developed. The dialogues on military, economic and political issues are only now taking a clear form. In this respect, Egyptian- American relations provide a fresh laboratory for forging U.S. policy toward any newly important ally. Continued and expanding ties between Cairo and Washington now appear to be a reality for the foreseeable future. There is a general COHBEHSUS that the partnership continues, on balance, to be beneficial to both parties. On military and regional political issues, the Climate Of C0mmUniC3ti°n and problem-solving appears to be improving, as differences over Sinai peacekeeping troops and over U.S. use of Ras Banas are being worked out, and as the costs of post-peace treaty regional repercussions seem to be diminishing. U.S. policy toward Egypt embodies a wide variety of national interests and concerns, ranging from the geostrategic importance °f E8YPt'3 1°C3ti°fi in the Middle East to the opportunities presented American businessmen in investing in Egypt's constantly growing market for goods and services. The formulation of policy involves a broad range of government agenCieS- Th°Se Wh° are Te3P0n‘ sible for defining, altering and imP1ementin8 U-S- P°1i°Y t°Ward E8YPt may find that policy must shift with changes in the bilateral and global political environment. Issues on the military agenda, for example, may be cast in a new light after an event such as the Libyan intervention in Chad of December 1980. CRS-26 The recent transition in the American government, the June 1981 elections in Israel, or cabinet reshuffling in Egypt may all contribute to alterations in the approach and emphasis of American dealings with the Sadat government. Among the approaches to Egyptian-American relations that may alternatively or sequentially be considered by American policy-makers are the following: A. Emphasis on Continuity. This approach would underscore the stability of relations during a major transition in the U.S. Government. It reassures the close ally in Cairo that the relationship developed under the administra- tion of President Carter is not to be abandoned, despite dramatic shifts in the personnel and policies of the new administration. This approach points to the ongoing shared values and concerns, and reasserts as an American goal a permanent resolution of the Arab-Israeli conflict through the diplomatic effort that began as the Camp David process. The need to work conscientiously to expand and strengthen the dialogues on military and economic issues is addressed. There is a recognition of problem areas, but the common good will and climate of trust permits an airing of differences. B. Lowered U.S. Profile. This approach would seek to downgrade the vis- ibility and prominence of U.S.-Egyptian relations, while maintaining the understanding that now exists between the two countries on regional security needs and core values. For Sadat, the policy may defuse the anti-American theme of his domestic opposition, and if that opposition appears to be a growing problem, may strengthen the stability and longevity of his tenure in office. At the same time, for the United States, lowering the profile may enhance the prospect for U.S. ties with anti-peace treaty Arab states and for continued American ties with a post-Sadat regime. This strategy might entail carefully CRS-27 limiting the number of American personnel in Cairo at the embassy and the AID mission, and being sensitive to symbols of American presence, as exemplified by Congress’ reluctance, during consideration of the FY 81 State Department appropriations bill, to fund a high-rise embassy facility, sending the archi- tect's blueprints back to the drawing boards. A second aspect of this gradual and arguably beneficial shift in rela- tions might be altering U.S. development strategy in Egypt. Many believe that American aid projects could be recast to more directly benefit the Egyptian rural population and that this would be in the American interest as well as in the interest of the largest number of Egyptian citizens. This may result in some strong disagreements with Egypt's current economic establishment, and some setbacks in bilateral ties may occur. Proponents of the change argue that the United States can be a more demanding partner and Can assert itself in the dialogue more effectively because the relationship is suffienctly resilient and because Sadat is in need of a major donor- A lowered U.S. profile could also be useful if it were decided that the re-integration of Egypt into a closer relationship with its Arab neighbors were a key to regional stability. This option might entail E8YPti3n expressions Of views contrary to prevailing American policy, On matters including U-S- military presence in the region, Palestinian self-determination, and the F01e Of the Europeans in the peace process. Sadat has already aired his differences with the United States on several matters, without apparent harm t0 the relationship. As Sadat said to a group of visiting U.S. congressmen in April 1981, "By now, Egyptian American relations are so solid that we can differ and still sit and work together for the big aim -- the achievement of peace." lg] lg] As quoted in the Washington Star, April 21, 1981. CRS-28 C. New American Focus on Security. It is now commonplace to observe that the new administration has recast the tone and priorities of overall American foreign policy on the basis of security considerations. This new emphasis has already indirectly caused shifts in the conduct of bilateral relations with a wide number of allies and partners, including Egypt. The basic focus of American policy is now on East-West issues, and as a consequence, what some viewed as an overly personalized style of relations with leaders like Sadat under President Carter has been replaced with a more globalist strategic pos- ture. The public presentation of the relationship centers on finding comon views vis-a-vis the Soviet Union, not on forging friendships among leaders. In the case of Egypt, where there is a commonality of goals regarding Soviet influence in the Middle East, this need not mean a cooling of relations, but might suggest a more detached approach to the bilateral relationship. It might permit a de-emphasis of the economic aspect of the relationship, providing the United States with a means to be less directly associated with Egypt's seemingly insoluble economic problems. This approach might also result in officials other than Sadat speaking for Egyptian policy, as Occurred during the Defense Minister's trip to Washington in April 1981. For some, this is essentially a change in style, not substance, since the underlying premise for extensive U.S. involvement in Egypt's military and economic strength remains intact. CRS-29 V. The Role of Congress Congress has been deeply involved in the development of a new and closer relationship with Egypt, in part because of the dramatic and public peace treaty events and in part because of its traditional function in authorizing and appropriating funds spent overseas in military and economic aid programs. While some in the executive would no doubt have preferred Congress to leave them a free hand in dealing with Egypt, Congress and the executive branch have consulted frequently about the direction and goals of American policy toward Egypt, and on more than one occasion congressional committees have provided a major forum for debates and disagreements over the scale and scope of American involvement in Egypt. During the Camp David process, from the negotiations leading to the sign- ing of the framework documents through the on80in8 Peaee treaty imP1ementa' tion, Congress has been broadly supportive of the executive's policy toward E8YPt- It has encouraged the parties to find acceptable negotiating positions, and has actively promoted the peace treaty and its subsequent budget outlays. In considering the supplemental peace treaty aid Package in 1979 (P-L- 96-35): Congress added amendments to the administration's request for $1.47 billion in financing to permit more concessionary repayment terms, Should Conditions in the Israeli and Egyptian economies warrant it. Congress has required the administration to submit annual reports on Egypt's (and Israel's) debt repay- ment situations, and for FY 81 and FY 82, converted the proposed part-grant, part-loan ESF requests to all-grant form. In so doing: Cengreee has indicated that it fully supports the American commitment to help implement the peace treaty through extensive aid to both former belligerents, and is willing to defend the cost to the American public. CRS-30 On several occasions during the peace process, Congress offered new ideas and initiatives, which though not accepted by the parties, may have helped encourage them to work past political differences. Individual members of Congress have proposed Egyptian-Israeli cooperation in oil technology, and joint Arab-Israeli cooperative efforts in industry and agriculture. To date, little along these lines has been achieved. Many in the congressional com- munity see such suggestions merely as ways to initiate discussions between the parties, not as formal American proposals, and believe that the congres- sional advocate's role in problem-solving can be less restrained than the administration's. Congress, in this view, can introduce new and sometimes controversial topics to break a stalemate. Others, however, might find con- gressional initiatives unnecessary intrusions in the carefully constructed peace dynamic. Some are concerned that Egypt's trust of the United States could be at risk if Congressional enthusiasm is dimmed by the parties‘ reluctance to launch bold new projects at this stage. Congress restrained the Carter administration's efforts to resume mil- itary supplies to Egypt, including the proposed sale of C-130s and other aircraft to Egypt. Only in 1978, after several years of resistance, did Congress authorize the resumption of a military relationship. Some members of Congress have insisted that they will support American use of Egyptian base facilities such as Ras Banas only if there is a formal, signed agreement, a position at odds with both Egyptian and U.S. administration views. Congress has been in the forefront of the Egyptian-American political dialogue, and bears some responsibility for the development of a highly public profile in the bilateral relationship. President Sadat has paid frequent CRS-31 visits to congressional committees and has received countless congressional delegations in Egypt. He has often used such visits to make policy state- ments and to transmit messages to the American Government. Recently, Sadat seized the occasion of the visit of the Senate Majority Leader to announce his support for the sale of the F-15 enhancement package and AWACs to Saudi Arabia. Congress has watched the growing involvement of AID in Egyptian reform efforts with wariness. Congress requested reports from the Comptroller General which have examined aspects of the Egyptian-U.S. economic relation- ship and which have criticized U.S. policy, including the activities of the Overseas Private Investment Corporation in Egypt, and has raised questions about Egypt's agricultural policy and its overall absorptive capacity. Pend- ing before Congress is an amendment to the FY 82 foreign assistance bill to prohibit any one nation from receiving more than 30 percent of the global allocation of American aid through the Food for Peace (P.L. 480) Pr08ram- This is directed against Egypt, currently receiving 40 percent of worldwide P.L. 480 Title I concessional sales credits. Through its legislative acts, the work of CA0, and numerous official congressional delegations and staff study missions to Egypt, Congress has demonstrated its active concern and interest in national policy toward Egypt. That concern has influenced policy~makers in the executive branch and in the Egyptian government. As American-Egyptian relations continue to grow, Congress is likely to sustain its interest in these important ties, ties that contain the promise of continued mutual benefit as well as costs and problems for both nations. 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 * 1982 ** ‘k CRS-32 APPENDIX U.S. Assistance to Egypt, 1970-1982 (in $ millions) Total Aid Economic Military §_¥_§3_E. 3:93.“ §.E%E_11=_ _L_9§_‘L. (Including (Including P.L. 480) IMET) 1.5 -- 1.5 8 8 21.3 11.8 9.5 370.1 71.3 298.8 464.3 112.6 351.7 907.7 110.9 796.8 943.2 145.9 797.1 .2 2,385.2 607.4 277.4 .4 1,500. 1,173.8 903.0 280.0 .8 ____ 1,737.8 1,187.0 -- 8 550. 1,989.0 837.0 250.0 402.0 500. estimated ** proposed Sources: Organizations; U.S. Overseas Loans and Grants and Assistance From International Agency for International Development Congressional Presentation, FY 82, Annex IV; and Security Assistance Programs Congressional Presentation, FY 82. WASHINGTON umvensrrv 8T.LOU|S-MO. 3}