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Reference ID Created Released Classification Origin
09CAIRO2237 2009-12-03 13:01 2011-02-16 21:09 UNCLASSIFIED Embassy Cairo

DE RUEHEG #2237/01 3371331
R 031331Z DEC 09
E.O. 12958:  N/A 
REF: STATE 105978 
1.(U) Per reftel, below is the text of Embassy Cairo's 2010 National Trade Estimate for Egypt, also emailed as requested to USTR in a Microsoft Word document.

2.(U) Begin text: EGYPT TRADE SUMMARY The U.S. goods trade surplus with Egypt was $3.6 billion in 2008, an increase of $690 million from 2007. U.S. goods exports in 2008 were $6.0 billion, up 12.8 percent from the previous year. Corresponding U.S. imports from Egypt were $2.4 billion, down 0.3 percent. Egypt is currently the 36th largest export market for U.S. goods. The stock of U.S. foreign direct investment (FDI) in Egypt was $8.8 billion in 2008 (latest data available), up from $7.5 billion in 2007. U.S. FDI in Egypt is concentrated largely in the energy sector. IMPORT POLICIES In recent years, the Egyptian government has gradually liberalized its trade regime and economic policies, although the reform process has been somewhat halting. Under the leadership of Prime Minister Ahmed Nazif and a ministerial economic team in place since 2004, the government has adopted a wide range of significant reform measures. However, the government needs to continue to reduce corruption, reform the cumbersome bureaucracy, and eliminate non-science based health and safety standards. Tariffs In 2004, the Egyptian government reduced the number of ad valorem tariff bands from 27 to 6, and later down to 5. The government also dismantled tariff inconsistencies, rationalized national sub-headings above the six-digit level of the Harmonized System (HS), and eliminated services fees and import surcharges ranging from 1 percent to 4 percent. The government reduced its 13,000 line tariff structure to less than 6,000 tariff lines. These and other changes have significantly reduced requests for customs arbitration over the past five years. Over the past three years, Egypt has significantly reduced overall tariff rates. In February 2007, a presidential decree reduced import tariffs on 1,114 items, including foodstuffs, cloth, raw materials, and intermediate and final goods. The government also adopted the World Customs Organization (WCO) HS-2007 for classifying commodities. In April 2008, Presidential Decree 103 further reduced customs tariffs on several items including processed foods, agricultural goods, paper products, and some durable household goods, and eliminated completely tariffs on steel rebar, cement (portland, aluminous, hydraulic, and white), toilet paper, and similar paper items. As part of the government's stimulus package in February 2009, Presidential Decree 51/2009 amended the customs tariff schedule for 250 items, lowering import duties on many items and removing entirely duties on some raw materials and capital and intermediate goods such as inputs for spinning and weaving products. While Decree 51 generally lowered tariffs, it increased tariff rates on some basic chemicals, rubber and bamboo manufacturing products, some basic machinery, and medical equipment. The changes in the tariff schedule in Decree 51 have been described by the Egyptian government as temporary stimulus measures, and may be reversed in the future. The reforms of the past three years reduced overall weighted tariff average from 14.6 percent to 5.5 percent. Tariffs on the vast majority of goods entering Egypt are below 15 percent. Vehicles, alcohol, and tobacco are the only items on which tariffs are still 40 percent or greater. Passenger cars with engines under 1,600 cc are taxed at 40 percent; cars with engines over 1,600 cc at 135 percent. In addition, cars with engines over 2,000 cc are subject to an escalating sales tax of up to 45 percent. Clothing also faces relatively high tariffs, although the 2007 decree reduced the rate from 40 percent to 30 percent. The 2007 decree also reduced tariffs on several agricultural commodities and food products. Among the reductions were those for most varieties of fresh fruit, which dropped from 40 percent to 20 percent. Fruit represents less than 1 percent of U.S. agricultural exports to Egypt. In the 2007 tariff reduction, Egypt lowered four tariff lines to make them consistent with Egypt's WTO bound tariff rates. In 2008, Egypt lowered and eliminated most duties on various dairy products, rice, and soybean oil. Most key U.S. agricultural product exports to Egypt now enter at duties of 5 percent or lower; however, a number of processed food products face tariff rates ranging from 20 to 30 percent. The value of total U.S. agricultural product exports to Egypt in 2008 was $2.1 billion. Significant barriers to trade for U.S. agricultural products remain, particularly for those of animal origin. In addition, the government continues to make abrupt import regime changes without notification or opportunity for comment. In 2006, the tariff rate on poultry was reduced from 32 percent to zero, but in 2007, the government re-imposed a 30 percent tariff, which remains in place today. There is a 300 percent duty on alcoholic beverages for use in the tourism sector, including hotels, plus a 40 percent sales tax. The general tariff for alcoholic beverages ranges from 1200 percent on beer to 1800 percent on wine to 3000 percent on sparkling wine and spirits. Foreign movies are subject to duties and import taxes amounting to 46 percent, and are subject to sales taxes and box offices taxes higher than those for domestic films. Customs Procedures The Ministry of Finance has committed to a comprehensive reform of Egypt's customs administration, reorganizing the Customs Authority to meet international standards. Modern customs centers are being established at major ports to test new procedures, such as risk management, and new information technology systems are being implemented to facilitate communications among ports and airports. These systems were supposed to become fully operational in 2009, but were delayed and are now estimated to be completed by April 2010. The Ministry of Finance in August 2008 finalized the draft of a new customs law to streamline procedures and facilitate trade, but the proposed legislation has yet to be submitted to parliament for consideration, and it is unlikely that the legislation will be introduced in the near future. Egypt joined the International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention), completing its accession in 2007, upon ratification by the Egyptian parliament. Joining the convention requires participating governments to harmonize all customs procedures with those of the WCO standard to reduce barriers to trade and commerce. In complying with the convention, the Egyptian Customs Authority is adopting measures and procedures and re-organizing portions of the organization. Import Bans and Barriers Passenger vehicles may only be imported into Egypt by their original owners, and the owner must have purchased the car within the first 12 months of its production for it to be eligible for importation. The Egyptian Ministry of Health and Population (MOHP) prohibits the importation of natural products, vitamins, and food supplements. These items can only be marketed in Egypt by local companies that manufacture them under license, or prepare and pack imported ingredients and pre-mixes according to MOHP specifications. Only local factories are allowed to produce food supplements and to import raw materials used in the manufacturing process. The Nutrition Institute and the Drug Planning and Policy Center of the MOHP register and approve all nutritional supplements and dietary foods. The government attempts to complete the approval process in 6 to 8 weeks, but some products face waiting periods of 4 to 12 months for approval. Importers must apply for a license for dietary products, and annual renewal of the license costs approximately $1,000. However, if a similar local dietary product is available in the local market, registration for an imported product will not be approved. The MOHP must approve the importation of new, used, and refurbished medical equipment and supplies to Egypt. This requirement does not differentiate between the most complex computer-based imaging equipment and basic supplies. The MOHP approval process entails a number of demanding steps. Importers must submit a form requesting the MOHP's approval to import, provide a safety certificate issued by health authorities in the country of origin, and submit a certificate of approval from the U.S. Food and Drug Administration or the European Bureau of Standards. The importer must also present an original certificate from the manufacturer indicating the production year of the equipment and certifying that new equipment is indeed new. All medical equipment must be tested in the country of origin and proven safe. The importer must prove it has a service center to provide after-sales support for the imported medical equipment, including spare parts and technical maintenance. The Egyptian government supports the production of agricultural biotechnology. However, regulations exist for the review and approval of biotechnology seed. In 2008, insect resistant (Bt) corn was approved for cultivation, but in spring 2009, the permission to import additional seed for planting was denied by the Ministry of Agriculture due to political interference by a foreign country. The Egyptian government maintains a general policy that allows agricultural commodities, such as corn and soybeans, produced through biotechnology to be imported, as long as the product imported is also consumed in the country of origin. STANDARDS, TESTING, LABELING, AND CERTIFICATION The Egyptian Organization for Standards and Quality (EOS), which is affiliated with the Ministry of Trade and Industry, issues standards and technical regulations through a consultative process with other ministries and the private sector. Verification of compliance with standards and technical regulations for imported goods is the responsibility of agencies including the EOS, the Ministry of Health and Population, the Ministry of Agriculture and the General Organization for Export and Import Control (GOEIC) in the Ministry of Trade and Industry. Of Egypt's 8,500 standards, compliance with 543 is mandatory. EOS reports that it has harmonized such "mandatory standards" with international standards and that about 80 percent of its mandatory standards are based on standards issued by "international institutions" such as the Geneva-based International Organization for Standardization (ISO). In the absence of a mandatory Egyptian standard, Ministerial Decree Number 180/1996 allows importers to choose a relevant standard from seven "international systems" including ISO, European, American, Japanese, British, German, and for food, Codex. However, importers report that products that meet international standards and display international marks are often still subjected to standards testing upon arrival at the port of entry. Product testing procedures are not uniform or transparent, and inadequately staffed and poorly equipped laboratories often yield faulty test results and cause lengthy delays. Procedures are particularly cumbersome for products under the purview of the Ministry of Health and Population. The EOS also issues quality and conformity marks. The conformity marks are mandatory for certain goods that may affect health and safety. The quality mark is issued by the EOS upon request by a producer and is valid for two years. However, goods carrying the mark are still subject to random testing. Import and export regulations put in place in 2005 increased transparency and liberalized procedures to facilitate trade. These regulations allowed importers to use certifications of conformity from any internationally accredited laboratory inside or outside of Egypt. However, all imported goods are subject to inspection by GOEIC, which can be a lengthy process since samples are taken from each container. The regulations also introduced a mechanism for enforcing intellectual property rights at the border and extended the preferential inspection treatment given to inputs for manufacturing to include inputs for the service industry. While these measures have improved Egypt's inspection regime, some exporters to Egypt report that the regulations are not applied consistently or uniformly. Garment exporters also report that decrees such as 515 and 770, which require garments to include the stitched name of the exporter, result in increased costs and delivery delays. Other U.S. agricultural products, particularly those of animal origin, face barriers. The government of Egypt requires that officials from the Ministry of Agriculture be present to observe proper halal slaughter, even though the poultry industry in the United States contracts with Egypt-approved Islamic Centers in the United States to perform that service. This makes these products more expensive and complicates poultry importation. The government bans the import of poultry parts, such as leg quarters, to protect the local industry. Also, the requirement of inserting a label, which includes all product information, inside the vacuum bags complicates the importation of meat products. Imports may have to comply with labeling and packaging requirements that some importers find burdensome. Arabic labeling is required on all imported products. The Arabic language label must include the contact information of the importer and exporter, date of production and shelf life or expiration date, ingredients of the product, gross and net weight. The label may be applied in either the country of origin or in Egypt, but the product cannot be inspected and cleared for release until the Arabic label is applied. Although there is a list of permissible additives and colorants, inconsistency at the ports of entry sometimes makes importation of processed products risky. SANITARY AND PHYTOSANITARY MEASURES In recent years the Egyptian government has made great strides in reducing the bureaucratic hurdles and time required for customs clearance of agricultural products by taking a more scientific approach to sanitary and phytosanitary (SPS) measures, which are designed to keep the food supply safe. Despite these improvements, importers of U.S. agricultural commodities continue to face non-transparent and arbitrary treatment of imports in a number of cases. For example, U.S. beef products are still subject to strict import requirements that are not consistent with the World Organization for Animal Health (OIE) guidelines for trading with a "controlled" risk country. Eligible products only include boneless beef, including livers, hearts and kidneys from cattle less than 30 months of age that originated in Mexico, Canada, or the United States. In addition, meat products can only be imported directly from the country of origin. Pet food imports from the United States must be certified as being free of ruminant material. This makes it difficult for importers to supply a full range of U.S. product to the market. Other food imports are sometimes subject to standards that appear to lack technical and scientific justification. The Ministry of Trade and Industry is working with the Ministries of Agriculture and Health and Population, among others, to review SPS standards and food product inspection procedures to ensure WTO compliance and prevent duplicative inspection. Egypt is in the process of strengthening the Technical Barriers to Trade (TBT) and SPS enquiry points under the EOS and Ministry of Agriculture. A new law establishing a food safety authority responsible for all food safety issues including standards and inspections was drafted with technical input from USAID in 2008 and approved by the Cabinet of Ministers. The law was submitted to Parliament for review in 2008, but has not yet been discussed. The law is on the agenda for the parliamentary session that began in November 2009, but it is unclear if it will be enacted. Imports of U.S cotton must be from boll weevil-free areas. Therefore, Egypt allows only U.S. cotton from Arizona and California to be imported. In addition, cotton must be fumigated by methyl bromide for 36 hours under vacuum. Egypt remains one of the last large importers of seed potatoes in the world to which the U.S. does not have market access. Egypt requires that seed potato imports be free from brown rot despite its existence in Egypt. Several U.S. states producing seed potato are free of brown rot, and USDA and industry are working with Egyptian authorities to open the market. Recently, several shipments of imported grain and oilseeds from a variety of countries have been temporarily detained by port quarantine officials due to alleged excess amounts of weed seeds and dead insects. Cargos are usually permitted to enter after cleaning. Sampling and inspection procedures at the ports appear to be inconsistent. GOVERNMENT PROCUREMENT Egypt is not a signatory to the WTO Agreement on Government Procurement (GPA). A 1998 law regulating government procurement requires that technical factors, not just price, be considered in awarding contracts. A preference is granted to parastatal companies where their bid is within 15 percent of the price in other bids. In the 2004 Small and Medium-Sized Enterprises (SMEs) Development Law, SMEs were given the right to supply 10 percent of the goods and services in every government procurement. Egyptian law grants suppliers certain rights, such as speedy return of their bid bonds and an explanation of why a competing supplier was awarded a contract. However, concerns about transparency remain. For example, the Prime Minister retains the authority to determine the terms, conditions, and rules for procurement by specific entities. In 2006, the executive regulations of the Tenders and Bids Law were amended to streamline procurement procedures. The changes shorten the period required between announcing tenders and the submission of bids, reduce the cost for tender documents, require procuring entities to hold pre-bid meetings to clarify items in tenders and include model contract terms that set out the rights and obligations of contractors. The amendments allow SMEs to obtain tender documents at cost. Egyptian Law 89/1998 forbids the use of direct purchasing except for cases involving national security or national emergency, and a 2004 Prime Ministerial decree stipulates that all ministries must adhere strictly to that law. INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION Although Egypt has improved its IPR regime, the United States still has significant concerns about IPR protection and enforcement in Egypt. The Egyptian government has made progress in strengthening some IPR laws and enforcement procedures, and engagement between the United States and Egypt on IPR issues has remained strong. The Egyptian Patent Office reports that it has completed its technical examination of all applications filed in the "mailbox" for pharmaceutical patents; however, the United States is monitoring the situation to ensure the actual disposition of all applications filed in the mailbox and appropriate notifications to patent applicants. The United States was encouraged by the Egyptian government's introduction in 2008 of a new 120 day streamlined drug registration system for drugs carrying U.S. FDA or European approval, although the United States continues to monitor the full implementation of this system. The United States continues to seek written clarification that Egypt's Ministry of Health and Population provides adequate and effective protection against reliance on test and other data submitted for marketing approval of pharmaceutical products, and will continue to raise this issue in discussions with Egyptian IPR officials. The U.S. copyright industry continues to report high levels of piracy of movies, sound recordings, printed material, and computer software in Egypt, but significant improvements have been made. The Information Technology Industries Development Authority (ITIDA) under the Ministry of Telecommunications has improved protection of computer software and taken steps to ensure that civilian government departments and schools use legitimate software. The Egyptian Center for Intellectual Property and Information Technology reports that Egyptian authorities are increasingly willing to enforce copyright protections related to information and communication technology. The establishment in 2008 of special economic courts, which handle IPR cases with specially-trained judges, has also been a major reform. Consequently, a Business Software Alliance-IDC Report found that Egypt reduced its software piracy rate from 69 percent to 59 percent from 2003 to 2008, bringing its rate to just below the world average. SERVICES BARRIERS Egypt restricts foreign equity in construction and transport services to 49 percent. In the computer services sector, larger contributions of foreign equity may be permitted, such as when the Ministry of Communication and Information Technology determines that such services are an integral part of a larger business model and will benefit the country. Egypt limits the employment of non-nationals to 10 percent of an enterprise's general workforce and in computer-related industries requires that 60 percent of top-level management must be Egyptian within 3 years of the start-up date of the venture. Banking No foreign bank seeking to establish a new bank in Egypt has been able to obtain a license in the past 20 years, and in November 2009, the Central Bank Governor reaffirmed that no new banks would be given licenses. Since banking reform began in 2004, the government has divested itself from many joint venture banks, and privatized the fully government-owned Bank of Alexandria in 2006. However, efforts to restructure the remaining three state-owned banks have been mixed, and the Central Bank rejected privatization for the three banks in 2009 on the grounds that market conditions were not right. The three remaining state-owned banks still control at least 40 percent of the banking sector's total assets. The banking reforms in the past five years have succeeded in significantly reducing the share of non-performing loans. Telecommunications Despite the passage of a February 2003 law to allow for new telecommunications companies in accords with Egypt's WTO commitments, Telecom Egypt continues to hold a de facto monopoly since additional fixed-line licenses have not been issued by the National Telecommunications Regulatory Authority (NTRA). The NTRA postponed a plan to issue a second license in mid-2008, citing a lack of interest in the international markets for fixed-line service. However, in October 2009, the NTRA began accepting local and international bids for licenses to establish so-called "triple play" services of data, voice, and video in private residences, for which greater international market interest exists. The licenses for "triple-play" services are slated to be issued in 2010. Compared to fixed-line service, mobile phone service in Egypt is a more competitive sector, and three major private companies - Etisalat, Mobinil, and Vodafone - dominate the market. Transportation The government is liberalizing maritime and air transportation services. The government's monopoly on maritime transport ended with the passage of Law 1 of 1998, and the private sector now conducts most maritime activities including loading, supplying, ship repair, and, increasingly, container handling. The Port of Alexandria now handles about 60 to 65 percent of Egypt's trade. Renovations underway at the Port of Alexandria, thus far at a cost of about LE 750 million ($138 million) have increased handling capacity to 44 million tons per year, up from 32 million tons per year in 2004. The renovations included construction of deeper quays to receive larger vessels; re-design of storage areas, warehouses, and associated infrastructure; installation of new fiber optic cables for data transmission; installation of a more automated cargo management system; and renovation of the passenger cruise ship terminal. These renovations have resulted in a smoother flow of goods and services and have, combined with reforms in the Customs Authority, produced a sharp decrease in customs clearance times from three to four weeks in 2004 to about 3-5 days at present for the Port of Alexandria, and just 1 day at the Port of Ain Sukhna. However, when shipments are required to be approved by the General Organization for Import and Export Control (GOIEC), customs clearance may take between 2 to 20 days, depending on cargo type. Egypt and the United States concluded an Air Transport Agreement in 1964, and the countries have modified the agreement only twice since then, adding a security article in 1991, and in 1997 adding an amended route schedule, a limited agreement on cooperative marketing arrangements, and a safety article. The agreement remains very restrictive and has no provisions on charter services. In the past, private and foreign air carriers have not been able to operate charter flights to and from Cairo without the approval of the national carrier, Egypt Air. The United States remains interested in replacing the restrictive 1964 agreement with an Open Skies air services agreement. In June 2008, Delta Air Lines resumed operation of non-stop service between Cairo International Airport and New York's John F. Kennedy Airport. Egypt Air joined the Star Alliance in July of 2008 and has entered into a code share agreement with United Airlines. Egypt is working with the U.S. on transportation security issues at seaports and airports, and a bilateral memorandum of understanding on the Container Security Initiative is expected soon. Courier and Express Delivery Services Private courier and express delivery service suppliers seeking to operate in Egypt must receive special authorization from the Egyptian National Postal Organization (ENPO). In addition, although express delivery services constitute a separate for-profit, premium delivery market, private express operators are required to pay ENPO a "postal agency fee" of 10 percent of annual revenue from shipments under 20 kilos. In 2009, the government of Egypt proposed a new contract for private courier and express delivery companies, which would grant ENPO even more extensive regulatory oversight over the private express delivery sector by increasing considerably the fees paid to ENPO and requiring private express delivery companies to receive prior ENPO authorization for their prices and other polices. Given that ENPO is not an independent regulator, there are strong concerns that this new proposed contract will negatively impact competition in the express delivery sector. Other Services Barriers Egypt maintains several other barriers to the provision of certain services by U.S. and other foreign firms. Foreign motion pictures are subject to a screen quota, and distributors may import only five prints of any foreign film. According to the Egyptian labor law, foreigners cannot be employed as export and import customs clearance officers, or as tourist guides. INVESTMENT BARRIERS Under the 1986 United States-Egypt Bilateral Investment Treaty (BIT), Egypt committed to maintaining an open investment regime. The BIT requires Egypt to accord national and Most-Favored Nation (MFN) treatment (with certain exceptions) to U.S. investors, to allow investors to make financial transfers freely and promptly, and to adhere to international standards for expropriation and compensation. The BIT also provides for binding international arbitration of certain disputes. Based on a review of Egypt's investment policies, the OECD has invited Egypt to adhere to the OECD Declaration on International Investment and Multinational Enterprises. Egypt signed the Declaration in 2007, becoming the first Arab and first African country to join. During this process, Egypt agreed to review the restrictions on investors identified in the OECD's 2007 Investment Policy Review of Egypt, such as certain limits in the tourism sector as well as the discriminatory treatment of foreign investors in courier services. ANTICOMPETITIVE PRACTICES Under Egyptian competition law, a company holding 25 percent or more market share of a given sector may be subject to investigation if suspected of certain illegal or unfair market practices. The law is implemented by the Egyptian Competition Authority, which reports to the Minister of Trade and Industry. However, the law does not apply to utilities and infrastructure projects, which are regulated by other governmental entities. In June 2008, Law 3/2005 on Protection of Competition and Prohibition of Monopolistic Practices was amended and passed by the People's Assembly under Law 190/2008. The amendment sets the minimum fine for monopolistic business practices at LE 100,000 (US$18,380) and the maximum at LE 300 million (US$55.15 million). It also provides for doubling the penalty in cases where violations are repeated. The first trial under both new laws involved a cement cartel, which was convicted in 2008 and given a fine of LE200 million ($36.76 million), which was upheld on appeal. ELECTRONIC COMMERCE Egypt's Electronic Signature Law 15 of 2004 established the Information Technology Industry Development Agency (ITIDA) to act as the e-signature regulatory authority and to further develop the information technology sector in Egypt. The Ministry of State for Administrative Development (MSAD) is implementing an e-government initiative to increase government efficiency, reduce services provision time, establish new service delivery models, reduce government expenses, and encourage e-procurement. For example, the e-tender portal, established in August 2007, allows all government tenders to be published online. In September 2009, the government implemented the e-signature service, allowing public and private companies to offer e-signature authentication. New legislative proposals on information security, cyber crimes, and the right to information have been in the drafting process for over a year, and it is unclear if they will be implemented. OTHER BARRIERS Pharmaceutical Price Controls The Egyptian government controls prices in the pharmaceutical sector to ensure that drugs are affordable to the public. The government does not have a transparent mechanism for pharmaceutical pricing. The Pharmaceutical Committee in the Ministry of Health and Population reviews prices of various pharmaceutical products and negotiates with companies to adjust prices based on a cost-plus formula. This method, however, does not allow price increases to compensate for inflation and the pricing policy has failed to keep pace with the rising cost of raw materials. In 2007, the government granted price increases for selected pharmaceutical products, but the approved increases were minimal. About 85 percent of active pharmaceutical ingredients in Egypt are imported. In 2004, the government reduced customs duties on most imports of pharmaceutical inputs and products from 10 percent to 2 percent. In that same year, the MOHP lifted restrictions on exporting pharmaceuticals to encourage pharmaceutical investment and exports. End Text. TUELLER