USTR - 1996 National Trade Estimate-Egypt
Office of the United States Trade Representative

 

1996 National Trade Estimate-Egypt

In 1995, the U.S. trade surplus with Egypt was $2.4 billion, $84 million greater than in 1994. U.S. merchandise exports to Egypt were $3.0 billion, $141 million more than in 1994. Egypt was the United States' thirty third largest export market in 1995. U.S. imports from Egypt totaled $606 million in 1995, a 10.6 percent increase over those in 1994.

The stock of U.S. foreign direct investment in Egypt was $1.4 billion in 1994, a decrease of seven percent from that in 1993. U.S. direct investment is concentrated largely in in petroleum, banking and maufacturing. Egypt acceded to the WTO in June 1995.

IMPORT POLICIES

U.S. exports face specific import barriers, such as high tariffs and quality control requirements that discriminate against imports. Under an economic reform program developed in conjunction with the World Bank and IMF, the Egyptian Government has taken steps to reform its highly centralized and regulated economy. Trade liberalization is a key element of its reform program.

Tariffs

Egypt's current customs regulations came into effect in 1986, significantly reducing tariffs. Further reductions were made in 1990, 1991, 1993 and 1994. Nevertheless, Egyptian tariffs are still relatively high compared to other developing countries with large internal markets and diversified industrial economies. In early 1993, the Government of Egypt (GOE) instituted the second phase of "compression" in which the tariff range was narrowed to between 5 and 80 percent, although some exceptions were maintained. In March 1994, Egypt further reduced tariffs. The maximum tariff rate was cut to 70 percent and tariffs between 70 and 30 percent were reduced by 10 percentage points. The lower rate was maintained at five percent. The Government, however, has failed to meet its commitment to the World Bank to further reduce the maximum custom tariff to 60 percent by end-1994 and 50 percent by mid-1995. The reduction to 50 percent is now expected in late 1996.

In lieu of the promised reduction, in February 1995, the Government reduced the custom duty on 18 categories of machinery and other durable imported goods from a range of 20-70 percent to a flat rate of 10 percent. Moreover, in January 1996, the Government made a similar reduction on 25 capital commodities. High rates still apply to automobiles with engines larger than 1300cc, alcoholic beverages, and certain luxury items. Furthermore, Egyptian Customs assesses a three or six percent service fee on imports, depending on the tariff applied. The Government has not honored its April 1994 agreement with the World Bank to reduce the service fee to a flat rate of two percent by July 1994, and abolish it by July 1995.

Customs Procedures

In 1993, Egypt adopted the harmonized system of customs classification. Exporters and importers claim,however, that customs duty assessment is often arbitrary, and rates charged are often higher than prescribed in the tariff code. Tariff valuation is based on so-called "Egyptian selling price" based on the commercial invoice that accompanies a product the first time it is imported. Customs authorities retain information from the original commercial invoice and expect subsequent imports of the same product to have a value no lower than that noted on the invoice from the first shipment. As a result of this presumption of increasing prices, and the belief that under-invoicing is widely practiced, customs officials routinely increase invoice values from 10 to 30 percent for customs valuation purposes.

Import Bans

All commodities may be freely imported into Egypt upon payment of the assigned duty, except for those on a list of items banned from import. The import ban now applies only to textiles, apparel and poultry. Egypt is phasing out these bans as a result of its commitments in the Uruguay Round. However, exceptions to the import ban list significantly reduce its impact. According to the August 1993 regulations, an item may be imported if it is required for the petroleum, military, tourism or civil aviation sectors, or is a necessary production input approved by the appropriate Minister. Because of these exemptions, the ban list has had a limited impact on American exports, with the exception of poultry. Despite a commitment to the World Bank, Egypt has not removed poultry from the import ban list.

New Restrictions

Egypt has imposed new obstacles to importing previously-banned products. Substantial increases in the duty rates of several products such as tractors, cement, and frozen vegetables were imposed immediately after their removal from the ban list in August 1992. The tariff on poultry, which remains on the ban list, was increased from five to 70 percent.

STANDARDS

Many items removed from the ban list, including meat, fruits, vegetables, household appliances, and transformers, were added to the list of commodities requiring inspection for quality control before importation. Agricultural commodities have been increasingly subject to quarantine inspection, so much so that some importers have begun scheduling pre-inspection visits to the United States to facilitate import upon arrival in Egypt. In August 1994, five more items were added to the list, which now consists of 131 items, including foodstuffs, spare parts, construction products, electronic devices, appliances, and many consumer goods. Although Egyptian authorities stress that standards applied to imports are the same as those applied to domestically-produced goods, importers report that testing procedures for imports differ, and that tests are carried out with faulty equipment by testers who often make arbitrary judgments.

Five Egyptian ministries or agencies make rules for agricultural imports and issue permits: agriculture, health, economy, industry, and scientific research. The rules are confused and conflict with international practice. For example, the Ministry of Health's regulations for labeling processed food conflict with those of the Ministry of Industry. In addition, Egypt sets the shelf life of processed foods by regulation, as opposed to the standard international practice of allowing producers to determine the life of their product. Early in 1994, the Government decreed that (mainly food) products entering Egyptian ports should have 50 percent or more of their shelf life remaining. Egyptian shelf life standards ignore quality differences between producers and often have been established without scientific basis. An August 1994 decree extended shelf life standards to certain non-food imports, such as syringes and catheters.

Other product specifications act as barriers to trade. For example, the Ministry of Health requires that beef imported for direct human consumption have less than seven percent fat, a level virtually never reached in premium beef exports. Sales of $1-2 million of high quality U.S. beef annually have been jeopardized.

Substantial dollar sales of U.S. apples are estimated to be lost each year because the Ministry of Agriculture claims that the presence of dead insects indicates a threat to local agriculture. The same concern over dead insects leads to mandatory refumigation of numerous grain shipments, significantly adding to the overall cost of importing the commodities. Additional burdens to importers are caused by the Ministry of Agriculture's ability to refuse the entry of imports because of the presence of cotton seeds. Importers allege that cotton seeds are regularly "found" by inspectors in efforts to extort payments. Egypt discriminates against imported flour by charging a 10 percent sales tax (in addition to customs duties), which does not apply to locally produced flour.

GOVERNMENT PROCUREMENT

Egypt, by law, gives national bidders a 15 percent price advantage on government tenders. Closed bidding is rare, as national law requires tendering for all significant projects. The tender process is subject to frequent complaints of lack of transparency, poor enforcement of rules, and rigged outcomes. As in other markets, U.S. companies claim that European and Asian competitors make payments forbidden them by U.S. law in order to win tenders. Such claims are difficult to assess. Egypt is not a member of the WTO Government Procurement Agreement.

LACK OF INTELLECTUAL PROPERTY PROTECTION

Egypt, as a party to the Berne Convention on Copyrights, the Paris Convention on Industrial Property, and the Geneva Phonograms Convention, generally protects U.S. intellectual property in accordance with the standards established in these conventions. The government passed an improved copyright law in 1992 and added software protection in early 1994. A new patent law is currently under consideration that may address significant remaining deficiencies. In April 1994, the U.S. Trade Representative lowered Egypt from the "priority watch list" to the "watch list" due to improvements in copyright protection, and in April 1995, the USTR placed Egypt on the list of countries "to be monitored for progress achieved". The U.S. Government continues to work closely with Egypt to improve intellectual property rights protection, especially in the drafting of an improved patent law.

Copyright

Copyright piracy, while still an issue, has been greatly reduced since 1993. It still affects most categories of works, including motion pictures (in video cassette format), sound recordings, printed matter (notably medical textbooks) and computer software. The Egyptian People's Assembly passed amendments to Egypt's 1954 copyright law in June 1992. Penalties against piracy were increased substantially and computer software was afforded specific protection. In March 1994, the People's Assembly passed additional amendments which treat computer software as a literary work, thus ensuring a term of protection consistent with the Berne Convention. In April 1994, a ministerial decree established explicit protection for sound recordings, including the granting of rental rights and narrowed provisions for personal use copying of computer software. The GOE made considerable progress in enforcing the law and the new regulations.

Patents

The existing Egyptian patent law dates from 1949 and provides protection far below international standards. It contains overly broad compulsory licensing provisions and excludes from patentability substances prepared or produced by chemical processes if such products are intended to be used as food or medicine. Moreover, the patent term is only 15 years from the application filing date, compared with the international standard of 20 years. A five-year renewal may be obtained only if the invention is of special importance and has not been adequately worked to compensate patent holders for their efforts and expenses. Compulsory licensing limits the effectiveness of patent protection. A compulsory license may be granted if the patent is not worked or is inadequately worked within three years following the patent grant, the law does not provide for the alternative period of four years from the date of filing, as the Stockholm Act of the Paris Convention requires. A patent may be forfeited for "non-working" two years after issuance of the first compulsory license. The Egyptian law's definition of infringement does not include the use, sale, or importation of a product made using a process patented in Egypt and the law precludes patenting of the product itself (i.e., food or pharmaceutical products).

In 1993 and 1994, U.S. experts met with Egyptian experts responsible for revising the patent law. The draft represents substantial progress toward implementation of a modern patent law. The United States remains very concerned about the possible insertion into the draft law of a delay in implementation of pharmaceutical product protection to the year 2005, the full transition period allowed by the TRIPs agreement. The value of U.S. export sales to Egypt lost due to deficient patent protection is unknown. Egypt has made a commitment to the United States to submit a suitable new patent law to parliament during 1996.

Trademarks

Allegations of trademark infringement arise periodically by U.S. and other foreign firms operating in Egypt. The trademark law is not enforced strenuously and the courts have only limited experience in adjudicating infringement cases. Fines amount to less than $100 per seizure, not per infringement, although criminal penalties are theoretically available. Egypt is currently considering completely revising its laws in order to enhance significantly legal protection for trademarks and industrial designs.

SERVICES BARRIERS

Insurance

A law passed in 1995, allows foreign companies to take a minority stake in Egyptian insurance companies. At the same time, they are allowed to operate as majority share holders in the free trade zones and in reinsurance, neither of which is likely to prove attractive to foreign investors. Four public-sector companies (one of which is a reinsurance company) dominate the market, although three private-sector Egyptian companies exist. Two joint ventures, with 49 percent foreign ownership, operate in the free zones.

OTHER SERVICES BARRIERS

Since March 1993, Egypt has allowed existing foreign bank branches to conduct local currency operations. Two U.S. bank branches have received licenses to do so. Foreign brokers are permitted to operate in the Egyptian stock exchange. Egypt maintains several other barriers to the provision of services by U.S. firms, including: maintaining a theatrical screen quota for foreign motion pictures; allowing only Egyptian nationals to become certified accountants; denying private and foreign air carriers from operating charter flights to/from Cairo, except those with the approval of the national carrier; and regularly censoring films and printed materials. Egypt has shown no interest in deregulating its state-owned telecommunications industry.

INVESTMENT BARRIERS

Under the 1992 U.S.-Egypt Bilateral Investment Treaty (BIT), Egypt is obliged to maintain critical elements of an open investment regime, including national and MFN treatment of foreign investment (with exceptions limited by the treaty), free financial transfers, and international law standards for expropriation and compensation. Moreover, the BIT establishes procedures for U.S. investors in Egypt directly to enforce the treaty's obligations through international arbitration. Generally, current Egyptian law meets or surpasses BIT standards in all categories.

In principle, investors are now assured of automatic approval for projects in sectors which do not appear on a "negative list". This "negative list" includes the following: military and related products; tobacco and tobacco products; and, investments in the Sinai (except for exploration of oil, gas, and mineral resources). Amendments in 1995 permitted majority Egyptian investments in the Sinai in any sector.

Despite liberalization, new investment benefiting from incentives offered under law 230 (under which most foreign investments are registered) must be approved by the investment authority (GAFF). This process often causes lengthy delays as GAFF's board does not meet on a regular basis. In January 1996, the government announced that all investment could begin operation without prior GAFF approval. While promising, the impact of this change remains unclear. Applications for investments under law 159 (which does not benefit from incentives) often take six months even if they do not appear on the "negative list." The United States addressed liberalization of Egyptian investment screening requirements within the Uruguay Round negotiations on trade-related investment measures and this has been recently the subject of intensive bilateral discussion in the context of the Mubarak-Gore Partnership for Economic Growth.

ANTI-COMPETITIVE PRACTICES

Egypt does not have laws prohibiting monopolies, cartels, or conflicts of interest. Given the small size of the economy, most sectors are dominated by only a few players, whether private or state. Thus, anti-competitive practices are rife in the economy, with the exception of transactions under the government procurement law, which establishes price as virtually the only important factor in awarding tenders. Egypt hopes to pass an anti-trust law during 1996. It is difficult to establish the harm posed to U.S. exporters by anti-competitive practices.

OTHER BARRIERS

Outside of energy, pharmaceuticals is the most important area in which prices are controlled. In this area, major harm to U.S. and other companies has resulted from their inability to adjust prices to reflect general inflation. As a result, Egypt has some of the lowest drug prices in the world. Foreign companies occasionally allege discrimination in granting price increases. However, pricing of new-to-market drugs is administered fairly, using a cost-plus formula agreed to with the bid. Another area of difficulty for foreign pharmaceutical companies is that the Ministry of Health does not allow more than four similar drugs in the market, reducing companies' ability to expand their product lines.

 
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