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Cablegate: Parliament Passes Weakened Amendments to the Competition

VZCZCXYZ0001
RR RUEHWEB

DE RUEHEG #1351 1811300
ZNR UUUUU ZZH
R 291300Z JUN 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 9691
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0417

UNCLAS CAIRO 001351

SENSITIVE
SIPDIS

STATE FOR NEA/ELA, NEA/RA
USAID FOR ANE/MEA MCCLOUD AND RILEY
TREASURY FOR MATHIASON AND DENNIS
COMMERCE FOR 4520/ITA/ANESA/OBERG

E.O. 12958: N/A
TAGS: ECON EINV EFIN EG
SUBJECT: PARLIAMENT PASSES WEAKENED AMENDMENTS TO THE COMPETITION
LAW

Sensitive but Unclassified. Not for Internet distribution.

REF: Cairo 396

1. (U) The People's Assembly recently passed a modified version of
amendments to the competition law proposed by the Egyptian
Competition Authority (ECA) to make the law more effective. ECA
proposed an obligatory fine of 10% of annual profits for companies
found guilty of monopolistic practices. Press reports claim that
prominent NDP MP Ahmed Ezz was behind the PA's decision to cap the
fine at LE 300,000 million ($56 million) and leave imposition to the
discretion of the courts. Ezz is one of Egypt's wealthiest
individuals and the owner of Ezz Steel, Egypt's largest steel
producer and the subject, along with several other steelmakers, of
an ECA investigation into alleged cartel activity. Ezz is also
reportedly responsible for removing from the final version of the
amendments a "leniency" clause proposed by ECA. Leniency clauses
are standard in many countries' anti-monopoly laws and the ECA
proposal would have allowed a 50% reduction in the fine imposed on a
company if the company admitted guilt and cooperated with ECA in
investigating cartel activity.

2. (SBU) Press reports immediately began circulating that Minister
of Trade and Industry Rachid had resigned in protest over the PA's
watering down of ECA's proposed amendments. Rachid is widely seen
as locked in a battle with Ezz over the former's efforts to improve
transparency and enforcement of Egypt's commercial law, and separate
the often intertwined interests of government officials and the
private sector. Rachid's office quickly denied rumors of his
resignation. Mona Yassin, Head of the ECA, told us that she and
Rachid agree that passage of the amendments, even with the PA's
modifications, is a partial victory. When the competition law
passed in 2005, the maximum fine was LE 10 million ($1.8 million),
the equivalent of one day's profits for some companies. The new
maximum fine of LE 300,000, while less than ECA had hoped for, would
still strengthen the deterrent effect of the law.

3. (SBU) Yassin saw Ezz's efforts to cap the maximum fine as
evidence that steelmakers are concerned about ECA's investigation of
the steel industry. After the public prosecutor decided to pursue a
case against cement companies based on ECA's investigation of the
cement industry (reftel), steelmakers began to worry the ECA
investigation would turn up similar findings of monopolistic
activity in the steel sector. ECA is still conducting its
investigation of the steel industry, and a finding is expected in
August. Yassin was vague about the reasons for delays in producing
the results of the steel investigation, which were expected shortly
after the cement investigation findings in late 2007.

4. (U) Yassin said she did not believe steel prices would be
affected by a possible ECA finding of monopolistic practices in the
steel sector. Steel prices increased 60-70% in the first half of
2008 and are currently in the range of LE 5,990 ($1,130) to LE 6,995
($1,319)/ton. The real driving force behind rising prices is high
demand due to the construction boom fueled by Gulf oil money. To
lower prices, ECA recommended that the Ministry of Trade and
Industry (MOTI) issue new licenses to steelmakers looking to enter
Egypt's market, as a means of increasing the sector's capacity to
meet high demand. So far, MOTI has not taken action on this
recommendation, according to Yassin. She predicted prices would
likely continue to rise over the next few months, though not as
quickly as in the last six months.

5. (SBU) Comment: The weakening of ECA's proposed amendments to
the competition law highlights the continued vulnerability of
Egypt's government institutions and legal system to wealthy,
powerful interests with strong connections to the regime. It also
highlights how, as the government encourages private sector-driven
growth, it must grapple with its role as a regulator charged with
protecting consumers. Egypt's market economy is still fragile and
consumer protection agencies like ECA are still poorly understood
and easily abused. Absent strong disclosure or divestiture
requirements for government officials, the wealthy class will
continue to have ample opportunity to ensure that public policy
benefits them. Numerous contacts have told us that Egyptians are
acutely aware of steel and cement prices, as much of the residential
construction in Egypt is done by individuals or families rather than
construction firms. Ezz appeared on a television talk show shortly
after the parliamentary action, claiming that he was not the driving
force behind the weakening of the amendments. The host concluded
with the expression "you can fool some of the people some of the
time, but you can't..."
SCOBEY

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