RESTRICTED WORLD TRADE WT/TPR/S/xx150 28 June 2005 ORGANIZATION (05-2611)

Trade Policy Review Body

TRADE POLICY REVIEW

EGYPT

Report by the Secretariat

This report, prepared for the third Trade Policy Review of Egypt, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from Egypt on its trade policies and practices.

Any technical questions arising from this report may be addressed to Mr. Arne Klau (tel: 022/739 57 06; fax: 022/739 57 65) and Mr. Jacques Degbelo (tel: 022/739 55 83).

Document WT/TPR/G/150 contains the policy statement submitted by Egypt.

Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Egypt. Egypt WT/TPR/S/150 Page iii

CONTENTS

Page

SUMMARY OBSERVATIONS vii (1) The Economic Environment vii (2) Institutional Framework vii (3) Trade Policy Instruments viii (4) Sectoral Policies ix (5) Trade Policy and Trading Partners ix

I. ECONOMIC ENVIRONMENT 1

(1) MAJOR FEATURES OF THE ECONOMY 1

(2) RECENT ECONOMIC DEVELOPMENTS 2

(3) DEVELOPMENTS IN TRADE AND INVESTMENT 5 (i) Trade in goods and services 5 (ii) Investment 9

(4) OUTLOOK 10

II. TRADE AND INVESTMENT REGIMES 11

(1) INSTITUTIONAL FRAMEWORK 11

(2) TRADE POLICY FORMULATION AND IMPLEMENTATION 12

(3) TRADE POLICY OBJECTIVES 13

(4) MAIN TRADE LAWS AND REGULATIONS 14

(5) INVESTMENT REGIME 14

(6) TRADE AGREEMENTS 17 (i) World Trade Organization WT/TPR/S/150 Trade Policy Review Page iv

17 (ii) Preferential trade agreements

19 (iii) Other arrangements

21

III. TRADE POLICIES AND PRACTICES BY MEASURE 23

(1) OVERVIEW 23

(2) MEASURES DIRECTLY AFFECTING IMPORTS 23 (i) Documentation and customs procedures

23 (ii) Customs valuation

24 (iii) Rules of origin

25 (iv) Tariffs

26 (v) Other taxes and charges

33 (vi) Import prohibitions, restrictions, and licensing

34 (vii) Contingency trade remedies

35 (viii) Standards and other technical requirements

37 (ix) Other measures

40

(3) MEASURES DIRECTLY AFFECTING EXPORTS 40 (i) Registration, documentation, and control

40 (ii) Export taxes, charges, and levies

41 (iii) Export prohibitions, restrictions, and licensing

41 Egypt WT/TPR/S/150 Page v

(iv) Export subsidies, and duty and tax concessions for exports

41 Page

(v) Free zones and special economic zones

42 (vi) Export finance, insurance, and guarantees

42 (vii) Export promotion and marketing assistance

43

(4) MEASURES AFFECTING PRODUCTION AND TRADE 43 (i) Incentives

43 (ii) Competition policy and price controls

45 (iii) Government procurement

46 (iv) State-owned enterprises and privatization

47 (v) Local-content requirements

48 (vi) Intellectual property rights

49

IV. TRADE POLICIES BY SECTOR 53

(1) INTRODUCTION 53

(2) AGRICULTURE 54 (i) Main features 54 (ii) Policy developments 55

(3) FISHING 57

(4) MINING, PETROLEUM AND NATURAL GAS 57 (i) Main features 57 WT/TPR/S/150 Trade Policy Review Page vi

(ii) Policy issues 58

(5) ELECTRICITY 59

(6) MANUFACTURING 60 (i) Main features and policy framework 60 (ii) Selected manufacturing activities 62

(7) SERVICES 63 (i) Overview 63 (ii) Financial services 66 (iii) Telecommunication and postal services 69 (iv) Transport 70 (v) Tourism 72

REFERENCES 75

APPENDIX TABLES 77 Egypt WT/TPR/S/150 Page vii

CHARTS

Page

I. ECONOMIC ENVIRONMENT

I.1 Structure of merchandise exports and imports, 1995-03 7 I.2 Direction of merchandise trade, 1995-03 8

III. TRADE POLICIES AND PRACTICES BY MEASURES

III.1 Breakdown of applied MFN duties, 2005 28 III.2 Tariff escalation by ISIC 2-digit industry, 2005 30

IV. TRADE POLICIES BY SECTORS

IV.1 Tariff protection in the industrial sector, 2005 61

TABLES

I. ECONOMIC ENVIRONMENT

I.1 Egypt in figures, 1998/99 to 2003/04 1 I.2 Basic macroeconomic indicators, 1998/99 to 2003/04 3 I.3 Fiscal operations, 1998/99 to 2003/04 4 I.4 Balance of payments, 1998/99 to 03/04 5 I.5 Foreign direct investment, by country of origin, 1999/00 to 2003/04 9

II. TRADE AND INVESTMENT REGIMES

II.1 Ministerial responsibility for trade-related issues 13 II.2 Main trade-related laws 14 II.3 Areas eligible for incentives under the Investment Guarantees and Incentives Law 15 II.4 Egypt's notifications under the WTO Agreements, August 2004 18

III. TRADE POLICIES AND PRACTICES BY MEASURES

III.1 Structure of MFN tariffs, 1998 and 2005 27 III.2 Summary analysis of the MFN tariff, 2005 28 III.3 Tariff lines with applied rates higher than the corresponding bound duties, 2005 31 III.4 Tariff exemptions and concessions, 2005 32 III.5 General sales tax rates, 2005 33 III.6 Definitive anti-dumping duties in force, 2005 36 III.7 Egypt's major free zones, 2004 42 III.8 Privatized companies, 1993-04 47 III.9 Value of companies and productive units privatized, 1997-04 48 III.10 Tariff concessions subject to local-content requirement in assembled products, 2005 49 III.11 Overview of IPR protection, 2005 50

IV. TRADE POLICIES BY SECTORS

IV.1 Gross domestic product at factor cost, 1996/97 to 2003/04 53 IV.2 Land use by crop, 2003-04 54 IV.3 Agricultural output, 1997-03 55 IV.4 Fisheries sector, 1999-04 57 WT/TPR/S/150 Trade Policy Review Page viii

Page

IV.5 Petroleum and gas production, 1996-00 58 IV.6 Basic data on electricity, 1997-04 59 IV.7 Manufacturing output by activity, 1996-04 60 IV.8 Summary of Egypt's specific commitments in individual service sectors 64 IV.9 Summary of Article II (MFN) exemptions listed by Egypt 65 IV.10 Stock market indicators, 1996-04 68 IV.11 Telecommunication services, 1998-04 69 IV.12 Suez Canal traffic, 1996-04 71 IV.13 Legislation applied to the maritime sector, 2005 71 IV.14 Tourism industry, 1998/99 to 2003/04 73 IV.15 Legislation applied to the tourism subsector, 2005 73 IV.16 Investment incentives in the tourism industry, 2005 74

APPENDIX TABLES

I. ECONOMIC ENVIRONMENT

AI.1 Structure of exports, 1995-03 79 AI.2 Structure of imports, 1995-03 80 AI.3 Origin of imports, 1995-03 81 AI.4 Destination of exports, 1995-03 82 Egypt WT/TPR/S/150 Page ix

SUMMARY OBSERVATIONS goods account for about 30% and 48% of imports respectively; about 14% of imports (1) THE ECONOMIC ENVIRONMENT originate in Egypt's free zones and have not been classified by product category. Egypt's 1. Since its last Trade Policy Review main trading partners are, in descending (TPR) in 1999, Egypt's GDP has grown at an order, the United States, Italy, Germany, and average rate of 3.9% a year. Per capita GDP China. is now some US$1,120. Monetary discipline has helped to contain inflation at below 5%. (2) INSTITUTIONAL FRAMEWORK After a decade of being pegged to the U.S. dollar, the Egyptian pound has been 4. Since its last Review, Egypt has floating since January 2003. Egypt has maintained broadly unchanged its overall accepted the obligations of Article VIII of the institutional framework for trade policy IMF Agreement effective from January 2005. formulation; the Ministerial Economic Group Egypt's current account has posted growing has responsibility in this regard. Trade policy surpluses since 2000/01 (after years of is implemented by the Ministry of Foreign deficit), mainly a result of strong increases in Trade and Industry, established in November merchandise exports. Nevertheless, the fiscal 2004 through a merger of the Ministry of deficit has fluctuated around 6% of GDP in Foreign Trade and the Ministry of Industry recent years. Unemployment remains and Technological Development. Recent relatively high, at between 8% and 10%, and changes in trade legislation have been driven the poverty index is about 20%. mainly by a combination of autonomous policy initiatives and compliance with multilateral 2. Trade plays an important role in rules. Egypt's economy; exports of goods and services have been a motor for the current 5. A contracting party to the GATT since economic recovery. Egypt has traditionally 1970 and a WTO Member since June 1995, been a net service exporter, with service Egypt is an active participant in the receipts substantially exceeding merchandise multilateral trading system (MTS). Egypt exports. Important services sources of foreign accords at least MFN treatment to all WTO exchange are tourism and the Suez Canal. Members. It is seeking to liberalize its trade Remittances from Egyptians working abroad regime on a multilateral, regional, and are also an important source of foreign unilateral basis. In the current multilateral exchange receipts. Egypt's most important trade negotiations, Egypt supports meaningful merchandise exports are fuel products, which liberalization of the agriculture sector. It also accounted for about 43% of commodity seeks improved market access for non- exports in 2003; this share, however, has agricultural goods, but believes that concerns fluctuated considerably over the years due to for infant industries in developing countries price variations. Manufactures account for should be accommodated. In the services about 30% of merchandise exports, while the sector, Egypt supports greater multilateral share of agricultural products is about 15%; trade liberalization, most notably with respect cotton is the single most important to supply through the movement of natural agricultural export. The share of textiles in persons (mode 4). Egypt considers issues Egypt's merchandise exports has declined such as implementation, special and gradually, from 16.6% in 1995 to 4.5% differential treatment, and rules as essential to in 2003. the integration of developing countries into the MTS. Since its last Review, Egypt has 3. Merchandise imports fell by over 22% been a defendant in one dispute relating to between 2000 and 2003, mainly due to the definitive anti-dumping measures, and depreciation of the Egyptian pound. reserved its third party rights in another. Agricultural products and manufactured WT/TPR/S/150 Trade Policy Review Page x

6. Preferential agreements are July 2001. It has also increased efforts to increasingly important for Egypt's trade improve customs procedures. In September relations. In the period under review, it has 2004, Egypt eliminated all customs service concluded agreements with the European fees and charges of up to 5% on imports. A Union, Jordan, Morocco, and Tunisia. It is general sales tax, at rates between 5% and also a member of the Greater Arab Free 45%, applies equally to imported and Trade Area and the Common Market for domestic goods. Import prohibitions on most Eastern and Southern Africa. In addition, it textile and clothing products were lifted in has concluded a trade protocol with Israel and 2004, but remain in place for poultry offal. a trade framework agreement with the United Egypt does not maintain tariff quotas. States. However, a wide range of imported products are subject to mandatory quality controls. In 7. While Egypt has no specific law on December 2004, Egypt embarked on a foreign direct investment, most foreign programme to ensure that all its standards investment takes place under the 1997 comply with international standards; the Investment Guarantees and Incentives Law, programme is to be completed in early 2006. which defines incentives for investment in Since its last TPR, Egypt has submitted no certain activities. The incentives include tax notifications to the WTO on sanitary and advantages, reduced tariffs for imported phytosanitary (SPS) measures or on technical inputs, and guarantees against confiscation. barriers to trade (TBT). It has imposed 14 Foreign investment is managed by the General definitive anti-dumping duties and two Authority for Foreign Investment and Free safeguard measures. Most of the anti- Zones (GAFI), whose role has gradually dumping measures were on electric lamps and shifted from investment regulation to tyres; safeguard measures were imposed on investment promotion and facilitation. common fluorescent lamps and powdered milk. No countervailing duties were imposed. (3) TRADE POLICY INSTRUMENTS 10. Egypt promotes exports through 8. Egypt has bound over 98% of its tariff marketing assistance, and official credit and lines, at rates averaging 37.5% in 2005, down guarantee schemes. Free zones are in place to from 45% in 1998. Egypt's present applied promote export-oriented investment, and MFN tariff structure was implemented in employment. A new Export Promotion Law September 2004, with significant across-the- was adopted in 2002. Some 50 raw and board cuts and a reduction in the number of processed agricultural products are subject to tariff bands to twelve. As a result, the average mandatory quality control upon export. Egypt applied MFN tariff has fallen from 26.8% in does not apply any export taxes, charges or 1998 to 20%. Nevertheless, Egypt's tariff levies. system remains complex, with numerous exemptions, and concessions. Peaks, of up to 11. State ownership remains extensive in 3,000%, apply to alcoholic beverages and the Egyptian economy, although there is an spirits. For 19 tariff lines, the applied tariff ongoing privatization programme. Between exceeds, sometimes substantially, the 1999 and 2004, 97 companies were privatized, corresponding bound rate; imports from generating divestiture receipts of WTO Members are alleged to carry the bound LE 7.1 billion. The privatization programme or the applied tariff rate, whichever is lower. had lost some of its momentum at the Moreover, in aggregate, the tariff displays beginning of the millennium, but an ambitious positive escalation, i.e. high effective plan to revitalize it was presented to the protection. Cabinet in early 2004. It envisages the privatization of 125 of the remaining 9. Egypt has been implementing the 178 state-owned enterprises. WTO Agreement on Customs Valuation since Egypt WT/TPR/S/150 Page xi

12. Egypt's first comprehensive 15. The manufacturing sector contributes competition legislation was adopted by the about 19% of Egypt's GDP. It comprises a People's Assembly in February 2005. The broad range of activities, the most important Competition Law prohibits price collusion, being metallurgy and metallurgical products, production-restricting agreements, market food processing, and chemical products. sharing, and abuse of a dominant market However, Egypt's escalatory tariff structure position. Government procurement legislation does not encourage export-oriented grants a 15% price preference to Egyptian manufacturing. A key objective of the bidders. Tariff reductions on imported inputs Government is to increase the competitiveness for certain assembly industries are contingent of private enterprises in the sector. To this on local-content requirements. The end, it has launched the Industrial Government views the promotion of small and Modernization Programme for capacity micro enterprises as an important way to development. adjust to structural problems and to modernize the economy. In 2002, Egypt 16. With a share of about 48% in GDP, adopted new intellectual property legislation the services sector is vital to Egypt's economy. covering all major areas of the TRIPS The tourism industry and fees for using the Agreement. Suez Canal remain Egypt's most important sources of foreign exchange. Egypt's tourism (4) SECTORAL POLICIES industry has continued to perform well since 1999, despite a slump in 2001/02; however, 13. The contribution of agriculture to recent security-related events may affect its GDP in Egypt has been declining gradually growth prospects. Financial services reforms and was just below 16% in 2003/04. are planned for the near future; they include However, the sector retains a significant role the privatization of state-owned banks and in employment (about 34% of the labour insurance companies, and the establishment of force). Egypt remains a net importer of a deposit insurance scheme. The agricultural products, although its Telecommunications Law stipulates that agricultural trade deficit has decreased in Telecom Egypt will relinquish its monopoly recent years. Financial assistance to the status as domestic and international fixed-line sector is provided in the form of subsidized operator by 31 December 2005. electricity and water, the latter being provided almost free of charge to farmers. The 17. Egypt's Schedule of Specific Government also subsidizes various food Commitments under the GATS includes products, most notably bread, sugar, and oil, commitments on commercial presence and the for low-income groups. Since 1999, Egypt has presence of natural persons for the supply of a not submitted any notifications to the WTO number of individual service categories, most Committee on Agriculture. notably in telecommunications, construction and related engineering services, financial 14. The share of petroleum and natural services, tourism, and transport. Egypt's gas production in Egypt's GDP increased initial offer in the ongoing multilateral from 4.6% in 1998/99 to 11.6% in 2003/04, services negotiations provides for an mainly as a result of rising oil prices. Output expansion of its schedule of horizontal as well has increasingly shifted from crude oil as sector-specific commitments. production to natural gas as production at mature oilfields decreases. To engage in the (5) TRADE POLICY AND TRADING exploration of petroleum and natural gas, PARTNERS foreign companies must enter into a joint-venture with the state-owned Egyptian 18. Since its last TPR, Egypt has taken General Petroleum Corporation. steps towards the liberalization of its trade regime. The reforms reflect its commitment to WT/TPR/S/150 Trade Policy Review Page xii the multilateral trading system, in which it 20. tariff reductions, and reducing in the participates actively. As a proponent for gap between bound and applied tariff rates, issues of interest to developing countries, it would contribute to better resource allocation, has been instrumental in advancing the Doha enhance predictability and transparency of the Development Agenda by tabling proposals in trade regime, contain the need for incentives, several areas. Nonetheless, Egypt's recent and help to put the economy on a higher macroeconomic performance has been mixed. growth path. Trading partners could help by providing increased market access for 19. Continued structural and trade products and services of interest to Egypt. reforms, particularly further privatization,