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Cablegate: 2006 National Trade Estimate Report for Egypt

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 10 CAIRO 009302

SIPDIS

STATE FOR NEA/ELA and EB/MTA
USTR FOR BLUE AND SAUMS

E.O. 12958: N/A
TAGS: ETRD ECON EG USTR
SUBJECT: 2006 NATIONAL TRADE ESTIMATE REPORT FOR EGYPT

REF: STATE 193384

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TRADE SUMMARY
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1. From January to August 2005, the U.S. trade surplus with
Egypt reached $900 million. Exports to Egypt totaled $2.0
billion for this period, representing a 1.7 percent decrease over
the same period of 2004. U.S. imports from Egypt for the same
period totaled $1.1 billion, a 48 percent increase over the
corresponding period in 2004. Egypt ranks as the 39th largest
export market and the 63rd largest import market for the U.S.

2. In 2004, U.S. exports of goods to Egypt totaled $3.1 billion,
while imports from Egypt were $1.3 billion. The stock of U.S.
foreign direct investment in Egypt, concentrated largely in the
mining and oil/gas sectors, reached $4.2 billion in 2004 up from
$3.0 billion in 2003, and $2.9 billion in 2002.

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IMPORT POLICIES
---------------

3. Over the past decade, the Government of Egypt (GOE) has
gradually implemented a number of import policies to promote
greater trade liberalization. The list of goods requiring prior
approval before importation was eliminated in 1993. Egypt became
a member of the World Trade Organization (WTO) in 1995. In
September 2004, Egypt significantly reduced tariffs to become
fully compliant with its WTO/General Agreement on Tariffs and
Trade commitments. Progress in economic reform was halting
during the last several years, but received renewed impetus with
the appointment of Prime Minister Ahmed Nazif and a new
ministerial economic team in July 2004. Under the leadership of
Prime Minister Nazif, the GOE has taken positive steps (outlined
below), but problems remain that add to the cost of doing
business. The GOE will have to continue efforts to reduce red
tape, reduce corruption, reform the cumbersome bureaucracy, and
eliminate unreasonable and excessive Egyptian health and safety
standards.

4. In January 2003, the government partly floated the Egyptian
Pound (LE). Both government and business hoped the move to a
flexible exchange rate would improve access to foreign exchange,
but foreign exchange liquidity and turnover remained problematic
until a new Central Bank Governor was appointed in December 2003.
During 2004 the foreign exchange market stabilized with increased
availability of hard currency and the disappearance of backlogs
in business requests. By December 2004 the parallel foreign
exchange market, which had emerged in 2001, had largely
disappeared and the official U.S. dollar exchange rate stabilized
at LE6.25/$, with the pound gradually strengthening to LE5.75/$
in late 2005. In September 2004, Egypt established an interbank
market for foreign exchange, and formally adopted a convention
governing its trading in December 2004. This step indicated the
transition of Egypt to a liberalized exchange rate system,
encouraged by a strong balance of payment performance. Prime
Ministerial decree 506 of 2003, which established a surrender
requirement for all foreign exchange generating transactions, was
annulled in December 2004. Repeal of this restriction was
necessary to bring Egypt into compliance with IMF obligations
that prohibit restrictions on payments and transfers for
international transactions, discriminatory currency arrangements
or multiple currency practices unless otherwise approved by the
IMF. There are no reported delays in firms' requests for foreign
currency for loan repayments or imports, which have increased by
32.3 percent from fiscal year 2003/2004 to fiscal year 2004/2005.

-------
Tariffs
-------

5. On September 8, 2004 the GOE announced a new tariff
structure. The government removed services fees and import
surcharges, reduced the number of ad valorem tariff rates from 27
to 6, dismantled tariff inconsistencies, including sharp
escalation and reverse progression on tariff rates, and
rationalized national sub-headings above the six-digit level of
the Harmonized System (HS). The new tariff structure includes
six tariff rates, pegged to the degree of processing, that range
between 2 percent on raw materials, spare parts, and primary
feeding products and 40 percent on durable consumer goods. The
changes in tariffs brought down the officially announced weighted
average tariff rate from 14.6 percent to 9.1 percent. The
government also eliminated services fees and import surcharges
ranging from 1 to 4 percent. The GOE replaced its 10-digit
thirteen thousand-line tariff structure with a six-digit
structure with less than six thousand tariff lines. This change
should reduce disputes over product classification for customs
purposes. Additionally, the GOE eliminated export duties on 25
products that were in short supply on the domestic market.
Although the Finance Minister announced his intention to reduce
tariffs further by mid-2005, to date, no further reductions have
been made. Meanwhile, a number of high tariffs still exist,
including duties on alcoholic beverages, tobacco and cigarettes
and passenger vehicles with cylinder capacity (CC) above 2000.

6. All goods are subject to sales tax ranging from 5 percent to
25 percent. Egypt applies a sales tax of 10 percent on high
quality imported flour that is not applied to locally produced
flour. In December 2004, the Ministry of Finance passed an
amendment to the sales tax law aimed at reducing prices and
attracting new investment opportunities. In early 2005, Law No.
9 for 2005 was issued, which exempted capital goods from the
sales tax. The Finance Minister has emphasized that some
additional amendments to the sales tax will be introduced in 2006
to unify sales tax categories, establish new tax rebates, and
raise the minimum requirement for sales tax registration to
exempt small producers and traders. The current minimum
registration amounts are annual sales of LE 150,000 for traders
and LE 54,000 for producers and service-providers.
7. In January 2004, the GOE formally repealed a long-standing
ban on commercial clothing and fabric imports and replaced per-
piece tariffs on clothing (which the U.S. had challenged in the
WTO in December 2003) with ad valorem (percentage of value)
tariffs consistent with Egypt's commitments to the WTO. In
December 2004 Egypt reduced tariffs for certain textile and
apparel products and committed to a further round of tariff cuts
for additional textile and apparel products, which is expected to
take place during the first parliamentary session in 2006.
Currently the tariff rate on apparel is 40 percent. A February
2004 ministerial decree required companies wishing to export to
Egypt to register with the Egyptian General Organization for
Import and Export Controls (GOIEC) and to certify their
compliance with international labor, health, and environmental
standards through a on-site inspections by GOIEC inspectors. The
decree was amended in October 2004 to remove the inspection
obligation while maintaining the registration requirement.

8. Tariffs on passenger cars with engines under 1,600cc were
reduced in September 2004 to a maximum of 40 percent, while cars
with engines over 1,600cc now have a tariff rate of 135 percent.
The tariff rate on poultry was reduced to 32 percent, although
the GOE maintains a ban on U.S. poultry imports citing Halal
concerns (see below). There is a 300 percent duty on wine for
use in hotels, and a tariff ranging between 1,200 and 3,000
percent on alcoholic beverages for general importers. Foreign
movies are subject to duties and import taxes of about 46 percent
of the value of a film (32 percent for a copy of the movie, 12
percent on posters and 2 percent on the movie reel), as well as a
10 percent sales tax and a 20 percent box office tax (compared to
a five percent box office tax for local films).

9. High tariffs restrict the competitiveness of U.S. food
products such as U.S. apples and pears, which face a 40 percent
ad valorem duty, and U.S. exporters report that Egypt's
application of sanitary and phytosanitary measures to these
products are non-transparent and burdensome.

10. In March 2005, the parliament passed legislation which
included provisions to reduced taxes on soft drinks from a high
of 60 percent to an effective sales tax rate (after government-
approved deductions) of about 18 percent.

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Customs Procedures
------------------

11. Egypt announced implementation of the WTO customs valuation
system in July 2001. The system has not been fully implemented,
and importers sometimes face a confusing mix of the new invoice-
based and old reference-price valuation systems depending on the
type of imports. The Ministry of Finance is trying to assist
customs officials by translating and simplifying the WTO
valuation system, which uses seven valuation methods. The
Ministry of Finance has committed to a comprehensive program to
reform the customs system, and a priority is to implement the WTO
Customs Valuation Agreement. USAID has funds available for a six-
year, $30 million customs reform project to support the Ministry
of Finance's efforts. The Ministry of Finance is working with
other donors, including the European Union, on customs reform
issues. In this context, a comprehensive amendment of the
Executive Regulations of the Customs Law has been prepared by the
Ministry, and is now being circulated in the private sector for
comment, after which it will be submitted to parliament for
discussion and ratification. The amendment is expected to
address customs valuation and other problems, but as of December
2005, the amendment had not been submitted to parliament.

12. The September 2003 inauguration of the Cairo Model Customs
and Tax Center was an important step in modernizing customs and
tax administration in Egypt. Taxpayers registered in greater
Cairo can use this "one-stop shop" to settle income taxes, sales
taxes and customs for goods passing through any of Egypt's ports.
Two model customs centers were inaugurated in Alexandria and Suez
in 2005, and two others, in Dekheila and Port Said, are expected
to open in 2006.

13. In June 2002, the parliament approved a new Export Promotion
Law (Law 155). The law reinforces the coordinating authority of
the Ministry of Foreign Trade and Industry's General Organization
for Import and Export Control (GOIEC) for all import inspection
procedures, though the Ministries of Health and Agriculture
maintain their own inspection units and procedures. The customs
reform unit established under the law continues to work on
improving clearance regulations, including simplifying the duty
drawback and temporary admission systems for exporters. The law
also established an "export development fund" to promote Egyptian
exports and increase their share of foreign markets with the
assistance of the Egyptian Center for Export Development. A
budget has been appropriated for the fund to promote capacity
building in certain export-oriented sectors.

14. In November 2002, the Ministers of Foreign Trade and Finance
inaugurated the new temporary admissions unit at the Port of
Alexandria, a first step in a plan to upgrade operation of the
temporary admissions system at all ports of entry in the country.
USAID assisted the GOE in setting up three other sites for
temporary admissions and duty drawback in Suez, Port Said, and
Damietta. The three sites have begun operation.

------------------------
Import Bans and Barriers
------------------------

15. As noted earlier, Egypt lifted its ban on apparel imports on
January 1, 2002, replacing it with high specific-rate duties. In
January 2004 the GOE issued a decree replacing these specific-
rate duties with ad valorem (percentage of value) tariffs that
appear to be consistent with Egypt's commitments to the WTO.

16. In 1998, Egypt issued a decree stipulating that passenger
vehicles can only be imported during their year of manufacture,
effectively banning the importation of second-hand cars. In 2000
the decree was amended adding one year after the year of
production to the period during which passenger vehicles can be
imported. In October 2005, amendments to the executive
regulations for the Export and Import Law lifted the requirement
that cars may only be imported from their country of origin. The
regulations also allowed 'investors' to import a vehicle for
private use, without restriction on the year of manufacture,
providing an approval is obtained by the Chairman of the General
Authority for Investments and Free Zones. The still to-be-issued
customs regulations will allow Egyptians expatriates who are
returning to Egypt to import their personal cars with a discount
of 10 percent on FOB value for the first year post-manufacture,
starting October 1, and 5 percent for every subsequent year.

17. According to the Egyptian Ministry of Health's regulations,
natural products, vitamins and food supplements are prohibited
from importation into Egypt in their finished form. The only way
these items can be marketed in Egypt is by local manufacturing
under license, or by sending ingredients and premixes to a local
pharmaceutical firm to be prepared and packed in accordance with
specifications of the Ministry of Health. Only local factories
are allowed to produce food supplements and import raw materials
to be used in the manufacturing process.

18. Egypt also bans the importation of used and refurbished
medical equipment and supplies. The ban does not differentiate
between the most complex computer-based imaging equipment and the
most basic of supplies. At present, even new medical equipment
must be tested in the country of origin and proven safe before it
will be approved for importation into Egypt. These regulations
also apply to medical equipment being donated or sold charitably
at cost. FDA approval is key to having medical products
registered, although the Ministry of Health may do additional
testing on any medical device.
19. Egypt continues to block imports of U.S. poultry and poultry
products based on reported concerns that U.S. industry cannot
verify that it meets Egyptian Halal requirements. Despite
technical meetings and a June, 2003 written submission on steps
by U.S. industry to assure Halal treatment, the ban continues.
It was discussed at Trade and Investment Framework Agreement
(TIFA) meetings in November 2005, and the GOE gave assurances
that it would address this issue in the near future.

--------------------------------------------- -
STANDARDS, TESTING, LABELING AND CERTIFICATION
--------------------------------------------- -

20. Standards are established by the Egyptian Organization for
Standardization and Quality Control (EOS) in the Ministry of
Foreign Trade and Industry. However, verification of compliance
is the responsibility of agencies affiliated with various
ministries, including the Ministry of Health, the Ministry of
Agriculture and, for imported goods, GOIEC in the Ministry of
Foreign Trade and Industry.
21. Egypt has increased efforts to bring mandatory regulations
into conformity with international standards. Of the 3,387
standards, 387 are Egyptian technical regulations or mandatory
standards. Of these, the majority concern food products,
engineering goods, and textiles and clothing. In the absence of
a mandatory Egyptian standard, Ministerial Decree Number 180/1996
allows importers to choose a relevant standard among seven
international systems: including ISO, European (EN), American
(ANS), Japanese (JIS), British, German and, for food, accepts
Codex standards. Importers, however, report that despite having
met international standards and/or displaying international
marks, products often are subjected to standards testing upon
arrival at port. Product testing procedures are not uniform or
transparent, and inadequately staffed and poorly equipped
laboratories often yield faulty test results and lengthy delays.
Procedures seem to be particularly cumbersome for the products
falling under the purview of the Ministry of Health.
22. Egyptian standards are reviewed periodically, usually once
every five years, to ensure their relevance to current
requirements. In December 2004, Egypt embarked on a program to
ensure that all its standards comply with international
standards. The EOS completed the examination of all 387
mandatory standards and 2,000 of the voluntary standards in 2005.
It began reviewing the remaining 1,000 voluntary standards at the
beginning of 2006.

23. In addition to standards, the EOS also issues quality and
conformity marks. The conformity marks are mandatory for certain
goods that can affect health and safety. The quality mark is
issued by the EOS upon request by a producer and is valid for two
years; goods carrying the mark are subject to random testing.

24. Egypt's testing requirements improved with the issuance in
October 2005 of new import/export regulations, which completely
replaced the old regulations with more transparent and
liberalized rules designed to facilitate trade. The new
regulations reduced the number of imported goods subject to
inspection by GOEIC. They also permitted importers to rely on
certifications of conformity from any internationally accredited
laboratory inside or outside of Egypt for those goods still
subject to inspection by GOEIC. As noted above, although the
inspection regime has been liberalized, in practice, the new
regulations are not applied consistently or uniformly.

The new import/export regulations also transferred responsibility
for issuing and reviewing certificates of origin from GOEIC to
the Egyptian Customs Administration, introduced a mechanism for
enforcing intellectual property rights at the border, and
extended the preferential inspection treatment given to inputs
for the manufacturing to include inputs for the service industry.
An explicit list of the chemicals that cannot be imported into
Egypt was issued with the new regulations, thus clarifying a
previously ambiguous procedure.

25. In response to U.S. requests, Egypt in 2004 took steps to
address barriers to imports of U.S. and other foreign textile and
apparel, including removing costly and complicated labeling
requirements. The new export/import regulations eliminated the
previous registration requirement for garment imports. In
addition, fabrics are no longer subject to testing, and the
requirement that apparel labels include importer and other
information in Arabic was eliminated. Egypt also committed to
expedite the customs clearance process for apparel and textile
imports.

26. With respect to agricultural products, Egyptian tariff and
non-tariff barriers adversely impact bilateral trade. While
Egypt is a key U.S. agricultural export market and a major
purchaser of U.S. wheat and corn, certain imports, like poultry
parts, are banned, and others, including beef, apples and pears,
are subject to sanitary and phytosanitary measures that are non-
transparent and burdensome. Food imports are sometimes subject
to quality standards that appear to lack technical and scientific
justification and exports may have to comply with burdensome
labeling and packaging requirements. For example, meat products
can only be imported directly from the country of origin and must
include details in Arabic sealed inside and listed on the outside
of the package. This labeling requirement raises processing
costs and discourages some exporters from competing in the
Egyptian market.

27. The Ministry of Foreign Trade and Industry is working with
other ministries, especially with the Ministries of Health and
Agriculture, to review sanitary and phytosanitary standards and
the inspection of food products to ensure WTO-compliance and
prevent duplicative inspection. The new export/import
regulations eliminated the requirement that perishable products
have at least one-half of their shelf life remaining at the time
of import, but further amendment of an Egyptian standard may be
required before this can be fully implemented.

----------------------
GOVERNMENT PROCUREMENT
----------------------

28. Egypt is not a signatory to the WTO Agreement on Government
Procurement. In 1998, Egypt passed a law setting new regulations
for government procurement to make the tendering process more
open and fair and to provide the Egyptian Government greater
value for money in its procurements. The new law mandates that
technical factors, not just price, be considered in awarding
contracts. The preference shown to parastatal companies has
diminished, but not been eliminated. Previously, publicly owned
companies always received preference. Under the new law, this
preference only applies when the bid of a publicly owned firm is
within 15 percent of other bids. In the Small and Medium Sized
Enterprises (SMEs) Development Law, issued in 2004, SMEs were
given the right to supply 10 percent of the value of all
government procurement denoted in any tender. Contractors
receive certain rights under the law, such as speedy return of
their bid bonds and an explanation of why a competing contractor
won the bid. Many concerns about transparency remain, however.
For example, the Prime Minister can authorize the method of
tendering for specific entities according to terms, conditions,
and rules that he determines.

29. In August 2004 the newly appointed Prime Minister issued a
decree stipulating strict adherence by all government ministries
to the provisions of the Tenders and Auctions law that limit
direct orders to cases of national security or emergency. An
amendment to the Tenders and Auctions Law is being finalized,
which will require governmental authorities to fulfill 95 percent
of the value of procurement within 60 days or pay compensation if
they fail to do so. The amendment also stipulates compensating
contractors for price fluctuations that might occur during the
first year of the contract. The United States and Egypt have a
working group on government procurement established under the
U.S.-Egypt Trade and Investment Framework Agreement Council, and
Egypt supports discussion of transparency in government
procurement in the WTO.

----------------
EXPORT SUBSIDIES
----------------

30. The GOE mandated a $43 million subsidy program for Egyptian
cotton in October 2002 to encourage the use of local cotton by
textile mills. The program ended during the first half of 2003,
with no payments made to growers. There are no plans to renew
this program. The government had imposed restrictions on the
export of long and medium-long staple cotton to make these cotton
varieties more available for local mills, presumably sold at
lower prices than in foreign markets.

---------------------------------------------
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
---------------------------------------------

31. Though Egypt is a signatory to many of the international
intellectual property conventions, intellectual property rights
(IPR) protection was well below international standards until
2002. In 2002, Egypt took important steps to strengthen its IPR
regime through improvements in its domestic legal framework and
enforcement capabilities. In May 2002, Egypt passed a
comprehensive IPR law to protect intellectual property and to
attempt to bring the country into line with its obligations under
the World Trade Organization Agreement on Trade Related Aspects
of Intellectual Property Rights (TRIPS). The law addresses IPR
protection in areas such as patents, copyrights (with enhanced
protection for sound and motion picture recordings and computer
software), trademarks, geographical indications, plant varieties,
industrial designs, and semiconductor chip layout design. With
respect to certain violations, the law stipulates higher fines
and prison sentences for convicted violators. Although the law
has certain shortcomings, its passage demonstrated a marked
improvement in Egypt's IPR regime, offering protection for the
first time for several types of intellectual property. The
Executive regulations dealing with patents, trademarks, and plant
variety protection were issued in June 2003. Regulations
protecting copyright and related rights, were issued in June
2003.

32. Responding to Egypt's improved IPR protection, in May 2003
the United States Trade Representative (USTR) moved Egypt from
the Special 301 "Priority Watch List" (a designation that Egypt
had retained since 1997) to the "Watch List." However, the U.S.
government was deeply concerned by Egyptian government approval
in late 2003 for local manufacturers to produce copies of several
U.S. pharmaceutical products contrary to Egypt's obligations to
protect the holder of the intellectual property rights of such
products. As a result of these approvals, USTR in 2004 again
elevated Egypt to the Priority Watch List.

33. One issue of concern is the protection of pharmaceutical
test data against unfair commercial use. The data protection
problem appeared to worsen in late 2004. A court rescinded a
U.S. firm's exclusive marketing rights for a product pending
patent approval. The decision raised concerns, as it challenged
the first instance in which a government entity had granted an
innovator company such exclusive marketing rights. Moreover,
there were indications that the Egyptian Ministry of Health was
preparing to approve a significant number of copies of
pharmaceutical products for marketing in Egypt. The U.S.
Government was concerned that such approvals would violate
Egypt's obligations under TRIPS, its own IPR law, Prime
Ministerial Decree 2211, and assurances Egypt has given the U.S.
Government on data protection.

34. Substantial and meaningful progress has been made in
establishing and strengthening some of the government
institutions necessary for an effective intellectual property
regime, and the enforcement of IPR rights has improved in 2005
compared with 2004. Provisions of the new IPR Code allowing for
the protection of pharmaceutical products became effective on
January 1, 2005. A modern, computerized Egyptian Patent Office
operating under the authority of the Ministry of Higher Education
and State for Scientific Research is capable of receiving and
examining paper or electronically filed patent applications.
This office has also significantly improved the quality and
transparency of Egypt's registration system.

35. Egypt has taken advantage of numerous technical assistance
opportunities provided by both the USAID-funded IPRA project and
the United States Patent and Trademark Office (USPTO) on topics
such as patent examination, writing technical examination
reports, and the processing of applications under the Patent
Cooperation Treaty (PCT). In accordance with its WTO/TRIPS
obligations, the Egyptian Patent Office opened the "mailbox" for
pharmaceutical patent applications on January 1, 2005, and began
legal and technical examination of the approximately 1,500
pharmaceutical patent applications in the "mailbox." The PCT
entered into force in Egypt in September 2003. PCT applications
designating Egypt began entering the "national phase" in Egypt in
2005. Currently, Egypt is the eighth largest filer of PCT
applications among developing-country PCT members. In addition,
the World Intellectual Property Organization (WIPO) has
designated Egypt as a regional patent training center. The
Patent Office is also in the process of adopting a manual of
patent examination procedures to promote quality, consistency,
and transparency.

36. The Egyptian Trademark and Industrial Designs Office, as
well as market inspectors responsible for non-copyright related
IPR enforcement, are located in the Ministry of Supply and
Internal Trade. In 2005, the Trademark Office eliminated a five-
year backlog of pending trademark applications. It is now taking
one year to register a mark in Egypt. The Ministry relocated the
Trademark and Industrial Designs Office to a modern facility in
December 2005. The process of registration will be fully
automated, and these offices have access to the Internet for
international searches for the first time, as well as other
communications improvements. Industrial design applications are
now being examined, and the offices are developing transparent
procedures for filing and examination.

37. Infringement of trademarks, textile designs, and industrial
designs remains a problem, but the GOE has taken steps to improve
enforcement in this area by training civil inspectors in IPR
enforcement, issuing improved inspections procedures and taking
steps to implement measures at its borders to prevent the
importation of counterfeit and pirated goods. New regulations
and procedures to implement TRIPS border measures are also being
developed.

38. In October 2004, the Ministry of Agriculture established a
new Plant Variety Registration Office. However, there still
exist articles in the Egyptian 2002 IPR law that make it very
difficult for applicants to meet the requirements to register for
protection of their new, distinct, uniform and stable plant
varieties. As of December 2005, no new plant varieties have been
registered by the office. The Ministry of Agriculture has formed
a committee to resolve the problems associated with granting
plant variety protection in Egypt, but no action has yet been
taken. U.S. companies are still advised not to export new
breeding material or new plant varieties to Egypt until the
issues are addressed. Egypt is working on reforming the
administration of its IPR laws, including plant varieties, as
part of its efforts to join the International Union for the
Protection of New Varieties of Plants.

39. Piracy adversely impacts most of the copyright industries in
Egypt, including motion pictures (in video cassette format),
sound recordings, books and other printed matter, and computer
software. Improvements have been seen in regard to computer
software protection, and the GOE took steps to ensure the
authorized use of legitimate business software by civilian
government departments and in schools. Major U.S. software and
computer companies operating in Egypt report a piracy rate in
business software under 50 percent and improved enforcement in
2004 and 2005. Unfortunately, there continues to be a problem
with false licensing, where a local distributor presents
documents purporting to authorize the distribution of the works,
but the documents are supplied by a party that lacks the
authority to grant the authorization. Even when the Ministry of
Culture is convinced that the documents are fraudulent, the
distributor is permitted to rely upon Ministry of Culture
approval and to distribute pirated software, music, and films.
This practice undermines copyright protection in Egypt. The
Egyptian government took steps to revoke such approvals for well-
known pirates and the lack of further action against false
licensing is reported to be due to the government's inadequate
human and physical resources in this area.

40. IPRA, a USAID technical assistance program, is working with
several Egyptian Ministries to strengthen IPR enforcement and
increase public awareness. Reports indicate an increase in
police, Ministry of Culture and Ministry of Supply and Internal
Trade involvement in IPR protection in 2004 and 2005. The USAID
program is also working with the Ministry of Justice on IPR
enforcement issues, including on efforts to increase the legal
awareness of judges on IPR issues and to build institutional
capacity to handle infringement cases. In 2005, approximately
450 judges received local training in intellectual property
rights enforcement through the IPRA project, and Egyptian judges
also participated in IPR enforcement training programs in the
United States. In addition, 150 civil inspectors have been
trained in IPR enforcement procedures.

-----------------
SERVICES BARRIERS
-----------------

41. Egypt participated actively in the Uruguay Round
negotiations on services, but made commitments in only four
sectors: construction, tourism, financial services, and
international maritime transport. Egypt subsequently made
commitments in the 1997 WTO agreement on financial services
negotiations. Egypt is gradually implementing its General
Agreement on Trade in Services (GATS) commitments. Egypt
supported launching a new round of trade negotiations, including
trade in services, at the WTO Ministerial meeting in Doha in
November 2001. In late June 2005, Egypt revised its services
offer and included a number of new sectors: computer, courier,
air transport services, some construction sub-sectors (building
and finishing works), and some insurance sub-sectors.

42. Egypt has restrictions for most service sectors in which it
has made GATS commitments. These restrictions place a 49-percent
limit on foreign equity in construction and transport services.
In the computer 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 add value to
the country. With courier services, some cases require special
authorization from the Egyptian National Postal Organization
(ENPO). Egypt restricts the employment of non-nationals to 10
percent of the personnel employed by a company. Limitations on
foreign management were also placed in computer-related services
(60 percent of top-level management should be Egyptian after
three years of the start up date of the venture). Restrictions
on the acquisition of land by foreigners for commercial purposes
were amended in 2002 to allow the acquisition of land by non-
Egyptians under certain criteria and procedures.

43. In 1998, the GOE passed legislation allowing privatization
of Egypt's four state-owned insurance companies. The law removed
the prohibition on majority foreign ownership of Egyptian private
insurance firms, permitting up to 100 percent foreign ownership.
In addition, the law eliminated the prohibition on foreign
nationals serving as corporate officers of insurance companies.
There are currently at least six foreign insurance companies
operating in the market: Alico, AIG, ACE and ACE AIIC (U.S.),
Legal and General (U.K.), and Allianz (Germany). There are
eleven private sector insurance companies, three of which are
joint ventures with U.S. firms The Ministry of Investment
announced in September 2005, that Egypt has commissioned an
international consortium to restructure its four state-owned
insurance companies, opening the way for their privatization.
The ministry has selected the Paris-based BNP-Paribas, Egypt's
Commercial International Bank (CIB), and the New York-based
insurance consulting firm Milliman to do the job. Once the
restructuring is complete, a privatization plan for at least one
of the companies will be devised; an actual privatization is not
expected before the second half of 2006.

44. There are 61 banks in Egypt, 22 of which are joint ventures
with foreign participation. As a result of its 1997 WTO
financial services commitments, Egypt does not limit foreign
equity participation in local banks. Several foreign banks have
majority shares in Egyptian banks, while other foreign banks are
registered as branches of the parent bank (rather than
subsidiaries). In all cases, these foreign banks can conduct all
banking activities in Egypt. New foreign banking entrants face
barriers, however. Because the government believes there are too
many banks in Egypt, it has not issued a new banking license in
at least ten years and announced it plans in the next five years
to reduce the number of banks in Egypt to 21. As a result, the
only way a foreign bank can enter the market in Egypt is to
purchase an existing bank. In 2002, the Central Bank of Egypt
(CBE) required that banks raise their capital adequacy ratios to
meet Basel II standards. The 2003 banking law substantially
raised minimum capital requirements for all banks to LE 500
million mandating that banks unable to meet this requirement
either merge with other banks or exit the market. The deadline
of June 2005 for banks to meet the capital step-up was finally
upheld after several postponements. Four banks failed to achieve
the new threshold and are to undertake subsequent procedures such
as merging with larger institutions. Although the government has
advocated the merger of some smaller banks since early 2001, it
was not until late 2004 that two banks merged and three applied
for CBE approval. More progress was made in 2005 with the merger
of two large state banks, Banque Misr and Banque du Caire, and
the merger of the National Societe Generale Bank (NSGB) with Misr
International Bank. The GOE has also been proceeding with plans
to divest its shares in joint venture banks. To date, six joint
venture banks have been divested of public shares.

45. Also in 1998, legislation was passed to allow privatization
of the four state-owned banks that control over 50 percent of the
banking sector's total assets. Progress on privatization has
been slow. In 2004, the government appointed new, western-
trained senior management teams for the four banks. Government
plans to privatize one public bank (the Bank of Alexandria) were
announced following the appointment of a new Cabinet in July
2004. This privatization was expected to be completed by the end
of 2005, but a revised forecast now puts the deal in the first
quarter of 2006. The downsizing and privatization of Egypt's
banking sector should strengthen it and improve implementation of
market-based financial operations.

46. Egypt's WTO financial services commitment in the securities
sector provides for unrestricted market access and national
treatment for foreign companies. International investors are
permitted to operate in the Egyptian stock market largely without
restriction. Several foreign brokers, including U.S. and
European firms, have established or purchased stakes in brokerage
companies. In May 2002, the Minister of Finance issued a decree
to establish the Primary Dealers System which starting operating
in July 2004. The new system allows financial institutions that
are registered with the Ministry of Finance, currently including
13 banks, to underwrite primary issues of government securities
and to activate trading in the secondary market through sale,
purchase and repurchase of government securities. The government
is using the primary dealers system to manage its public debt,
secure non-CBE finance and create a market-based yield curve for
public debt.

47. Telecommunications services have expanded rapidly in the
past four years as the sector has been liberalized and opened to
international competition. The impetus for the liberalization
came from Egypt's accession in June 2002 to the WTO Basic
Telecommunications Agreement and to the WTO Information
Technology Agreement in April 2003. These agreements required
the liberalization of telecommunication services, full autonomy
of the National Telecom Regulatory Authority by January 2006, and
the phasing out of tariffs on all information technology imports
from WTO members. In February 2003, Egypt's parliament approved
a new telecommunications law that established the framework for
the government to meet these commitments, including the
termination of Telecom Egypt's monopoly of domestic and
international telephone service by January 2006.

48. Egypt has made significant progress in meeting its WTO
telecommunications-related commitments. The GOE began
dismantling its state-owned Telecom Egypt monopoly in December
2005 by privatizing 20 percent of its assets. International
firms actively participate in Internet and cellular services, and
are eligible to bid on licenses for new telecommunications
services and for contracts offered by Telecom Egypt to modernize
its networks and switching equipment. Telecom Egypt has sought
foreign participation in the management and operation of the
national telecommunications grid, although no agreements have yet
been signed. More progress, however, is needed in establishing
full autonomy for the National Telecommunication Regulatory
Authority.

49. In the cellular service market, which currently consists of
two private GSM operators, the government plans to allow more
competition by issuing a the third license through public tender
in 2006. The license will stipulate that the winner employ
neutral second- or third-generation technology (either GSM or
CDMA). The GOE has set the second quarter of 2007 as the target
date for the third mobile company to be fully operational.
50. Maritime and air transportation services are being
liberalized. A 1998 law ended the long-held government monopoly
in maritime transport, and the private sector now conducts most
maritime activities, including loading, supplying, ship repair,
and, increasingly, container handling. The new Ain Sukhna port
is the first privately owned and operated Egyptian port and East
Port Said port, which was inaugurated in October 2004, is the
second. Egypt Air's monopoly on carrying passengers has been
curtailed, and several privately owned airlines now operate
regularly scheduled domestic flights and international charter
services, although the national carrier remains by far the
dominant player in the sector. Private and foreign air carriers
may not operate charter flights to and from Cairo without the
approval of the national carrier, Egypt Air. Egypt passed laws
in 1996 and 1997 permitting private firms to build and operate
new airports. Private concessions can operate businesses and
provide services in airports, but private ownership of airports
is still not permitted. Six new build-operate-transfer airports
were under construction at the start of 2001. The first, Marsa
Alam, situated on the Red Sea, opened at the end of 2001. The
second, Borg Al-Arab Airport, near Alexandria, began operation in
early 2005. The GOE plans to increase the number of airports in
the country from the current 18 to 25 over the next decade.

51. 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 are
allowed to import only five prints of any foreign film. The GOE
applies to private express mail operators a postal agency fee of
10 percent of annual revenue from shipments under 20 kilos, a fee
that negatively affects their competitiveness. Shipments
weighing more than 20 kilos are treated as freight and are not
subject to the 10 percent fee. According to the Egyptian labor
law, foreigners cannot be employed as export and import customs
clearance officers and tourist guides.

-------------------
INVESTMENT BARRIERS
-------------------

52. Under the 1992 U.S.-Egypt Bilateral Investment Treaty (BIT),
Egypt committed to maintaining the critical elements of an open
investment regime, including national and Most-Favored-Nation
(MFN) treatment of investment (with exceptions specified in the
treaty), the right to make financial transfers freely and
promptly, and international law standards for expropriation and
compensation. The BIT also establishes formal procedures to
enforce the treaty, including international arbitration.

53. In 1999, Egypt and the U.S. signed a Trade and Investment
Framework Agreement (TIFA) that established a TIFA Council
designed to facilitate the discussion of bilateral trade and
investment issues. The Council met most recently in November
2005 to review the findings of 15 working groups that are
examining technical issues related every sector of the economy.
The results of the TIFA process will be used to strengthen
bilateral trade and investment relations, with the goal of
establishing a solid foundation for possible Free Trade Agreement
negotiations.

54. In June 2005, a new income tax law was passed by parliament.
The law reduced and simplified tax rates on corporate profits and
personal income. The corporate tax rate was reduced from 42
percent to 20 percent (but maintained at 40.55 percent for oil
companies). The new legislation also eliminated all previous
exemptions and tax holidays. The law included provisions to
expand the tax base, including incentives for people and
companies working in the informal sector to legalize their
status. The Investment Incentives Law No.8/1997 was extensively
amended in June 2005, in order to conform with the new income tax
law. The system of preferences and incentives that had been
accorded to new investors in priority sectors, such as
agriculture, housing, transportation, petroleum, and computer
software, was eliminated. The amendments, however, allow for
limited exceptions to be made for multinational firms or other
large investors, subject to approval by the Prime Minister.
Investment incentives granted to new investors before the law was
amended continue under a 'grandfather' clause.

55. In 1995, Egypt notified the WTO about a measure inconsistent
with its obligations under the Agreement on Trade-Related
Investment Measures (TRIMS). The notified measure granted
customs duty reductions to investments that met certain
conditions with respect to resource exploitation, technology
transfer, and export performance. By making this formal
notification, Egypt qualified for a five-year transitional period
for phasing out the relevant measure. In February 2001, Egypt
submitted a request to the WTO for an additional five-year
transition period. This request, which was received after the
initial transition period had ended, was never formally granted
by the WTO.

-------------------------
ANTICOMPETITIVE PRACTICES
-------------------------

56. In January 2005, the Egyptian parliament approved an
antitrust bill, which sets a limit of 25 percent on market share
above which a respective company could be subject to an antitrust
investigation. Penalties on companies found to have engaged in
monopolistic practices range from LE13,000 to 10 million. The
law will be implemented by a new quasi-governmental body funded
by direct government appropriations and/or donations from
professional or academic bodies. However, the law will not be
applied to utilities and infrastructure projects, such as water
supply, sewage, electricity, telecommunications, transportation
and natural gas. The executive regulations of the law were
issued in August 2005.

-------------------
ELECTRONIC COMMERCE
-------------------

57. Egypt issued the electronic signature Law 15 of 2004 which
regulates authorization of electronic signatures and establishes
the information technology industry development authority. Egypt
is deferring a broader e-commerce law that will address such
issues as domain names, customs and duties, and creation of a
certificate authority to verify e-signatures. The development of
e-commerce in Egypt has been impeded by concern about the lack of
security on computer networks, the relatively high prices charged
by Internet Service Providers, and the limited number of Internet
users in the country.

--------------
OTHER BARRIERS
--------------

Pharmaceutical Price Controls
-----------------------------

58. The Government controls prices in the pharmaceutical sector
and does not have a transparent mechanism for pharmaceutical
pricing. The Ministry of Health reviews prices of various
pharmaceutical products and negotiates with companies to adjust
prices of pharmaceuticals based on nontransparent criteria. The
Ministry has not allowed complete adjustment of pharmaceuticals
prices to compensate for general inflation and depreciation of
the Egyptian pound since 2000. For example, although the
Egyptian pound has fallen 80 percent in value against the U.S.
dollar since June 2000, the government has granted price
increases for only some pharmaceutical products. Because both
domestic and foreign pharmaceutical companies rely heavily on
imported inputs, profitability has dropped sharply and some
companies claim to be operating at a loss. In September 2004 the
government cut customs duties on most imports of pharmaceutical
inputs and products from 10 percent to 2 percent. The government
claims this step will allow local pharmaceutical companies to
compensate for some of their losses from the devaluation. In
November 2004, the Ministry of Health lifted restrictions on
exporting pharmaceuticals to encourage pharmaceutical investment
and exports, and announced its intention to create a fund to
stabilize prices of local pharmaceutical products. Some reports
indicate the fund will mainly support local companies' research
and development efforts. Further details about the fund's
operations are not available. During 2005, the government
approved price increases on select foreign and domestic
pharmaceutical products.

Export Restrictions
-------------------

59. In August 2004 the Ministry of Agriculture removed
restrictions on exporting cotton. The Minister of Foreign Trade
and Industry then announced that all types of cotton will be
available for exporting in the 2004/2005 season, and that the
government will not interfere in cotton pricing. However, the
U.S. Government continues to have concerns about Egypt's
Alexandria Cotton Exporters' Association (ALCOTEXA), which
controls all cotton export pricing and policies. The USG raised
its concerns at the WTO's Working Party on STEs in November 2003
and awaits a response from the Egyptian government.

JONES

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