TRADE IRRITANTS IN EU-EGYPT TRADE

Scene setter

Structural weaknesses in the balance of payments (due to increasing trade deficit, worsening tourism revenue, low FDI and flat Suez canal revenues and remittances) have led to a supply shortage of FX and to reduced Net International Reserves (NIR), thus giving the Central Bank of Egypt few resources to defend the value of the Egyptian pound . The Central Bank and the Government of Egypt started to increasingly rely on administrative measures to defend the pound (capital controls, FX rationing, administrative measures to block the parallel market; and a coordinated GoE-CBE set of measures to reduce imports through the imposition of new import registration requirements, expansion of costly pre-shipment inspection requirements, higher customs rates and banking requirements). The FX deposit limits were introduced a year ago to reduce the use of the parallel FX market by companies, but have been eased in recent months, thereby contributing to the increase of prices on the parallel market.

On 14 March the CBE devalued the Egyptian pound by 14.5% against the USD, from 7.73 to 8.85 to a dollar (to 9.93 to the EURO). After the devaluation, the CBE has held regular currency auctions at a rate EGP 8.78 to the dollar (a slight adjustment to the initially set devalued rate of 8.85). The devaluation should increase the competitiveness of Egyptian exports, and increase the competiveness of Egyptian products compared to imports. Egyptian products (for both exports and for internal consumption) however tend to have a high import component and will therefore also be impacted by the increased cost of imports. At the same time, the potential increased access to FX should decrease some of the blockages in trade that were witnessed recently and impacted economic production in Egypt (for example witnessed by disruptions in major manufacturing sectors due to lack of components). It is widely expected that a further devaluation of the pound is likely over the following months (either managed, or through an effective floating of the exchange rate). The devaluation may offer some space to modify the rougher edges of the recent measures restricting imports. It however remains to be seen whether and, if so, to what extent the Government is willing to modify them. For the time being, scarcity of FX is a major impediment to importers and local producers who rely on imported components. Many businesses are operating at reduced capacity and importers are forced to resort to the black market to pay for the imported goods.

 Recent regulations restricting imports

As a part of a strategy to save forex and protect national industry, the Egyptian authorities have notably issued Decree No. 991 & Decree No. 43 mandating special import clearance procedures for a list of 25 categories of goods. The Egyptian government invoked the need for protection of the consumer from low quality and counterfeit goods, as well as the overall reduction of the import bill in view of foreign currency shortages. These measures were respectively adopted on 30 December 2015 and on 16 January 2016. Decree 43/2016 came into force and Decree 991/2015 started to be applied on 16th March 2016, two months after issuance of Decree 43/2016 in the official gazette. The new import clearance requirements have created a clear barrier to trade and are in reality intended to limit, indirectly, competition to the local industry.

- Decree 991/2015

According to decree 991/2015, the categories of products listed in its annex, which features a long list of goods, from chocolate, cosmetics, milk and dairy products to motorcycles, boilers, washing machines and air-conditioning equipment, are now subject to costly pre-shipment inspection of all consignments, except for commodities imported for personal and private use. The same system of PSI had been in force for textiles, clothing and shoes, and now MD 991/2015 extended the list of goods under PSI conditions contained in No. 5 of Annex No. 3 (Goods Imported As per Special Conditions) of MD 770/2005 to cover 23 additional product groups, plus a sanction was added (banning the companies or entities responsible for PSI from the market in case certificates are granted to goods not corresponding to the stated quality upon inspection by EG authorities). Standards against which PSI must be performed are however not clear, and cosmetics products, e.g., are already regulated by the Ministry of Health in Egypt, which creates a dual procedure. According to Decree no.770/2005 on the executive regulation to implement the import and export law, non-foodstuff imports of the products listed in item No. 5 of its Annex No. 3 (Goods Imported As per Special Conditions) can be exempted from the burdensome and costly obligation of accompanying each shipment with a pre-shipment inspection certificate if their producer is registered with Egypt’s General Organization of Export and Import Control (GOEIC) ('white list'). The criteria to be registered in this list are as follows:

1 – Application for registration by the commercial agent of the producer, or his representative, or the importer, indicating the trademarks and articles produced and their production sites in different countries.

2 – The producer shall maintain a quality control system regarding his products or his licensed production. Supportive documents shall be submitted along with the registration request.

3 – Production shall be carried out according to one of the approved standards of the Egyptian Organization for Standardization and Quality Control.

Neither registration in the white list nor a pre-shipment inspection certificate prevent consignments from being randomly inspected by GOEIC upon arrival in Egypt.

- Decree 43/2016

In accordance with Decree No. 43/2016, manufacturing plants or trademark holders or distribution centres of 25 categories of regulated products (the same ones as those listed in annex to decree 991 plus textiles, clothing and shoes) are also required to register in another register managed by the General Organization of Export and Import Control (GOEIC) in order to be allowed to export their products to the Arab Republic of Egypt for trading purposes .

The registration according to Decree no.770/2005 has not been replaced by the registration according to Decree 43/2016, and there are now two different and parallel registration requirements for importing companies – one compulsory according to Decree 43/2016, and another optional according to Decree no.770/2005 in order to avoid having to present the pre- shipment certificate with every single consignment ('white list'). Moreover, registration according to Decree 43/2016 is still obligatory for all the listed categories of products even if importing companies accompany each shipment with an inspection certificate.

Due to the new regulations, economic operators are forced to provide extensive documentation regarding their quality standards to their Egyptian partners, who usually do the registration at GOEIC. Economic operators are also responsible for translation of all the documents which are required for the registration processes with GOEIC by an authorised translation office and their legalisation by Egyptian embassy abroad. Both registrations expire with the expiration of the quality control certificate.

There is a pronounced confusion of and between the two registration procedures and a lack of transparency of the register established by Decree No. 43/2016. According to information received from EU companies, serious difficulties and in particular long delays are experienced with the registration according to Decree 43/2016. The number of EU companies registered according to Decree 43/2016 remains small compared to the number of market participants. The afore-mentioned measures represent a double barrier for SMEs which do not have the resources (financial or human) to face the processes of registration. Many EU companies are delaying shipments, waiting for confirmation that their goods will be allowed to be cleared at customs. As regards the different categories of products covered by the Decrees, by far the most significant in terms of value of EU exports to Egypt is milk and dairy products, amounting to EUR 280 mln (1.5% of EU exports to Egypt and 22.6% of EU exports in the covered categories of goods).

Following complaints by the industry and the lack of transparency and consultation with the stakeholders in the process of adoption of Decree No. 991 & Decree No. 43, the Delegation and DG TRADE invited the Egyptian government to withdraw the measures or at least to postpone their implementation allowing for an adequate review in line with Egypt's international obligations under the WTO and the Association Agreement. At political level, Commissioner Malmström raised the issue concerning Decree No. 43 in her letter to Tareq Qabil, Egyptian Minister for Industry and Trade.  Central Bank regulations limiting access to foreign currency

In order to save foreign currency, the Central Bank adopted a series of circulars regulating access to forex for importers. All industries are affected by these restrictions, except importers of basic commodities. Importers, whose business model is entirely import-based, without any manufacturing facility in Egypt, are particularly affected, as they are not considered to be priority for the attribution of forex. Companies are also hit by mounting delays in repatriation of profits abroad, accumulating money in Egyptian pounds, subject to the uncertainty of further devaluation.

- currency caps

Except for importers of basic commodities, all other importers are subject to cash deposit and withdrawal limits. The importers of production equipment, machines, and spare parts; intermediary commodities, production requirements and materials; pharmaceuticals, serums, and chemicals related thereto – are subject to a maximum limit of cash deposit with the aim to cover importation processes of 250 thousand US Dollars per month. All other importers of non-essential goods are subject to a maximum limit for cash deposits in foreign currencies in banks of 10 thousand US Dollars during the business day and 50 thousand US Dollars during the month. - 100% cash cover for imported goods

Since January 2016, importers seeking to open letters of credit are required to provide 100% cash cover corresponding to the value of imported goods in the same currency as the import transaction. The following are excluded from this requirement: medical appliances and equipment; machines and equipment spare parts; computers software, applications, and hardware and the requirements thereof. Previously, importers were required to provide 50% cash cover for letters of credit.

Banks are prohibited to finance the cash cover even on fully secured basis, the same applies for refinance.

- requirement to provide import documents via foreign bank

Central Bank Instruction of 21 December 2016 stipulates that customs documents which are related to import transactions conducted through ‘cash against documents’ must only be exchanged between the importer and exporter’s banks. Previously, customs documents were allowed to be sent directly from the exporter to the local importer or its representative in Egypt.

Exporters consider the compulsory intervention of a foreign and Egyptian Bank in the transfer of import documents as very time consuming and complex. The procedure as described to us by one exporter looks as follows: currently, all shipping documents, after being stamped by the competent Chamber of Commerce, are submitted to the local bank of the exporter and, subsequently, forwarded to its headquarters in the capital. The HQ sends the documents to the client’s bank in Egypt which upon receipt of them informs the importer who, from then on, may settle outstanding duties etc. and receive the customs clearance, respectively.  Ban on imports of motorcycles imports of two-stroke motor bicycles not equipped with oil injection pumps are suspended according to Decree no.770/2005, and imports of all the three-wheeled vehicles (tuk-tuks) and motorcycles for trading purposes remain suspended according to Decree No. 417 issued on 26 May 2014. Decree No. 417 re-allowed the import of motorcycles and tricycles for private or personal use, as well as the import of tricycles and components (engines – chassis) used for producing three-wheeled vehicles (tuk-tuks) and motorcycles.

 Certificates of origin and invoice declarations

Concerning proofs of preferential origin, the Egyptian authorities are no longer accepting invoice declarations by approved exporters in case of mixing on the same invoice preferential goods and goods without preferential origin, even when non-originating products are clearly identified. Article 12 in the executive regulations of the Customs Law and Article 14 in the executive regulations of the import and export law issued by Decree no.770/2005 exclude the Association Agreement between the EU and Egypt from the required legalisation of the certificates of origin or other documents proving origin of the goods and other associated documents by the Egyptian Embassy or Consulate in the exporting country and, in the case of the absence of an Egyptian Embassy or Consulate, by any Arab commercial representation in that country, as long as the goods are of EU-origin. At least some of the commercial offices at the Embassies of Egypt appear not to have been informed that European companies are not obliged to legalize the certificates of origin under the Association Agreement.

Moreover, the Egyptian authorities are also requiring that invoice declarations by approved exporters be submitted after being authenticated by the Egyptian Embassy or Consulate in the exporting country in case of mixing on the same invoice preferential goods and goods without preferential origin.

Circular No. (202) dated 17/11/2015 written by the Customs authority of Egypt also requires that the importer or his legal representative submit the original purchase invoice duly accredited by the Chambers of Commerce in the exporting country.

It has become even more important to effectively prove the EU origin to benefit from preferential customs tariffs since Egypt increased non-preferential tariffs on many goods at the beginning of 2016.

 Restrictive labelling requirements for textiles and ceramic tiles

The Egyptian authorities have also started to impose very restrictive marking requirements. The Egyptian standard ES 7266-4 (2011; Safety and health criteria and labelling for textile products, Part 4 : garments) state that each piece of consumer clothing needs to be labelled with country of origin and instruction of care. Article 102 in the executive regulations of the import and export law issued by Decree no.770/2005 however excludes imports for medical purposes and industrial security from the labelling requirement of each item. In practice however, since gloves for professional protection fall under Chapter 61, the Egyptian authorities treat industrial protection gloves in the same manner as consumer items (accessories for children, adults) and thus require the same type of information/instruction of use on each single pair of gloves without considering the intended use of gloves. The affected EU company follows Directive 89/686/EEC, Annex II, 1.4 or EN420 norm that sates that instruction of use should be provided in the “smallest commercial package available” and provides all the required instructions of use, instructions of care as well as country of origin on each pack of 12 pairs of its industrial gloves.

In a similar fashion, Annex (3) to the executive regulations of the import and export law issued by Decree no.770/2005 states that, concerning porcelain tableware and ornaments, origin and name of factory shall be prescribed on each item by scorching under the glaze layer. In practice, the Egyptian authorities also require to engrave the origin and the logo of the company on every single tile, rather than providing the afore-mentioned data on the box of tiles.

In both afore-mentioned cases, such restrictive marking requirements result in an increase of costs because companies have to change their production lines in order to attach the label to each industrial glove and to engrave the requirements in every tile.

 Import of live animals

Concerning import of animals, Egypt requires that live bovine animals exported to Egypt be quarantined in the country of origin for 21 to 30 days under supervision of an Egyptian official veterinary delegate, which is a burden for the exporters and contrary to international standards. Egypt also requires that the country of origin be bluetongue virus (BTV) free according to Article 8.3.3 of the OIE Terrestrial Animal Health Code instead of the generally accepted (and European standard) Article 8.3.7 (Recommendations for importation from BTV seasonally free zones), which turns exports virtually impossible. Egypt also seems to refuse vaccinated animals.

 National preferences in public procurement

Law 5/2015 regarding national preferences for Egyptian products in government contracts was adopted on 17 January 2015. It expanded the scope of application of national preferences to all supply and project agreements and extended it to public companies and companies in which the state has a ruling share. National preferences are granted to industrial products that have a national content of at least 40% of the product's price, unless such products are not available or the price of competing imported product is at least 15% lower. The certificates of fulfilment of the national content for a given product are to be issued by the Egyptian Industrial Federation.

Only registered Egyptian commercial agents can represent a foreign bidder in government tenders. Often such persons have retired from the government agency to which they are now specialized in selling. This system is especially common among persons selling to the military, security, and police agencies.

 Security services and money transit restricted to Egyptian companies

The new Security and Money Transit Law no. 86 of 2015 was issued in Egypt on 8 Jul 2015 prohibiting foreign companies from working in the security services and money transit business. The law compels existing foreign companies to sell their foreign shareholdings to Egyptian nationals by the end of the transition period. Furthermore, the law permits some governmental authorities (Ministry of Interior, Ministry of Defence and the General Intelligence Agency) to establish security services and money transit companies without being restricted by the provisions of the law. Allowing the government-linked company to operate in the market without being restricted by the law opens the doors for these companies to monopolize the market and jeopardizes the private business by making it face aggressive and unfair competition.

Following the intensive lobbying with the Ministry of Interior generated by the company concerned, the British Egyptian Business Association (BEBA), the British Embassy Cairo and the UK Trade Envoy to Egypt, the transition period has been extended by 12 months, and the law should now become applicable in January 2017. The aim however remains an amendment to the law which would allow the existence of foreign companies in the security services and money transit market in Egypt, and, in spite oi the recent co-operation demonstrated by the Ministry of Interior, the main aim has not been achieved as yet.

 E-marking for automotive components

In order to release certain E-marked products mentioned in Decree 540/2014 from customs, Egypt requires approval documents for each and every item issued by an authorization body at any of the member states signing the Agreement Concerning the Adoption of Uniform Technical Prescriptions for Wheeled Vehicles, Equipment and Parts which Can Be Fitted and/or Be Used on Wheeled Vehicles.

 Ban on rice exports

Egypt suspended rice exports from April 4 until further notice. The reason behind the ban is to ensure there is enough supply to cover the domestic demand (despite current local production exceeding demand), to limit production in order to save water resources and to avoid a hike in prices. Rice export bans had been in place already before and they tend to be temporary. The last one was introduced on 1 September 2015 and lifted on 3 October 2015. However, when lifting the ban, Egypt's Trade and Industry Minister Tarek Qabil imposed export fees of LE2,000 per ton of rice. These conditions made it economically unprofitable to export rice.

The ministry of Agriculture and Land Reclamation announced on 21 May 2016 that the amounts of rice would be doubled ahead of the holy month of Ramadan to enable citizens to buy rice at low prices.

 Customs valuation

In October 2014, Egyptian customs authorities issued price list directives for several car manufacturers, according to which they started to refuse accepting the transaction price indicated in the commercial invoices for Mercedes-Benz and BMW passenger cars and resorted to the use of the German retail prices as a baseline for their tariff calculation for these passenger cars, which increases the export costs for these Original Equipment Manufacturers (OEMs).

EU Delegation in Cairo

24/05/2016