VI. TRADE REGULATIONS AND STANDARDS TARIFFS AND IMPORT TAXES Egypt's current customs regulations came into effect in 1986. In 1991, under its economic reform program developed in conjunction with the IMF and the World Bank, the Government reduced the dispersion of its tariff rates from a minimum rate of 5% to a maximum rate of 100%, compared to a previous range of 0.7% to 120%. In early 1993, the Government instituted the second phase of compression in which the tariff range was narrowed further to between 80 and 5%. In March 1994, the maximum tariff rate was cut to 70% and tariffs between 70 and 30% were reduced by ten percentage points. The lower rate was maintained at five percent. Concurrent with the reduction in customs tariffs, and in order to encourage domestic industries, the Government addressed custom structure discrepancies by differentiating between custom duties levied on industrial inputs and finished products, the rates being lower on the former and higher on the latter group. Nevertheless, Egyptian tariffs are still relatively high compared to other developing countries. The Government has pledged to further lower the maximum limit to 60% by the end of 1994 and to 50% by mid- 1995. In February 1994, Egypt implemented the Harmonized System (HS), which replaces the previously used CCCN (Customs Commodity Classification Nomenclature), formerly called BTN (Brussels Tariff Nomenclature). The Government does not abide by tariff rates outlined in the GATT. In 1991, importers began to experience difficulties with custom officials who refused to apply the lower rates that Egypt had offered in the GATT for imports from GATT member countries. Subsequently, the Government submitted to GATT a request for a waiver of its obligation to provide these lower rates. The waiver was approved with the Government pledging to negotiate new rates with its GATT members. New GATT rates have yet to be finalized. To counterbalance the reduction in tariffs, in 1993 the Government levied a 1% service fee on the value of imported shipments in return for inspection, listing, classification and reexamination of shipments. In February 1994, this surcharge was raised to 3% or 6%, depending on the customs duty of the imported item: 3% for commodities subject to customs duties between five and 30% and 6% for those subject to custom duties over 30%. In accordance with an April 1994 agreement with the World Bank, the Government is committed to reduce this surcharge to 2% by July 1994, and abolish it in July 1995. In addition to the customs tariff, a sales tax ranging between 5% and 25% is added to the final customs value of the imported item. Law 87/86, issued by Presidential Decree, cancelled a series of taxes and fees which were formerly levied on imports: statistical duty, subsidy tax, marine duty, and the municipal tax. CUSTOMS VALUATION Egyptian customs procedures are complicated and rigid in areas such as duty rates. They are designed to eliminate trading loopholes. Authorities do not have to explain or justify their decisions and there is no formal appeal process for customs officers' decisions. Customs procedures are subjective when it comes to identifying whether a commodity fits in one tariff category or another. Implementation of the Harmonized System is expected to help eliminate this arbitrariness because it identifies items by a ten-digit code which allows simpler and more accurate classification of commodities. Under-invoicing is prevalent in Egypt as a means of tax-avoidance by local businesses. The Customs Authority has a tough policy regarding commercial invoices. Tariff valuation is based on the so-called "Egyptian Selling Price" -- the Government's reference for custom valuation -- based on the commercial invoice that accompanies a product the first time it is imported. Customs authorities retain information from the original commercial invoice and expect subsequent imports of the same product to have a value no lower than that noted on the invoice from the first shipment. "Like" products must generally be imported with invoice prices similar to other "like" products, although some allowance is given on an ad hoc basis for different sources of supply (such as expensive versus cheap-labor source countries). In cases where customs officials suspect under-invoicing, they usually add from 10 to 30% to the invoice value of imports for customs valuation purposes. Customs officials suspect under-invoicing when legitimate sellers low-ball introductory prices of samples, then send larger quantities at higher prices; offer one price for a few items, and a quantity discount for subsequent shipments; or introduce a new product at a basic cost much cheaper than similar products previously imported from other sources. Assembly industries may benefit from lower customs rates on imported goods if they meet a local content requirement of 40%. In this case, they may choose how they wish tariffs to be computed: 1) they may either apply to the imported goods the tariff applicable to the finished product, minus a certain percentage, ranging between 20 to 85%, dependent on the local content (e.g., customs duties are reduced by 40% for imported components used in a finished good that has 40% local content); 2) alternatively, the producer may choose to pay the rate applicable to each individual imported part, if the rate is lower than that computed under the first method. Assembly industries importing complete knock-down parts are charged the tariff rate on the final product minus 10%. LOCAL CONTENT IN FINAL PROPORTION OF REDUCTION OF PRODUCT IMPORT DUTY Local content is 20% 25% Local content is 30% 30% Local content is 40% 40% Local content is 50% 50% Local content is 60% 60% Local content is 65% 65% Local content is more than 65% and up to 75% 75% Local content is more than 75% 85% A February 1994 amendment of some articles of the import/export regulations introduces a new provision for duties on semi-finished products exported from Egypt to another country in which the manufacturing process will be completed. Duties on these goods, when re-imported as finished products, will be levied based on value-added, plus transportation and insurance costs, resulting in a tariff that is less than that which would be levied on a similar finished product import. Prior to issuance of Ministerial Decree 99/94, free-of-charge compensatory shipments meant to make up for losses caused by a drop in the international price of an imported good between the contract date and the time of shipment were considered illegal imports. The importer had to pay a fine equal to the value of the additional quantities before customs would release them. Now, compensatory shipments are released from Customs and the importer does not pay extra custom duties for the additional quantities, since custom fees are computed based on the value, not quantity, of the original shipment. Ministerial Decree 99/94 of February 1994 allows for the release of imports that replace previously imported defective or damaged goods without assessing custom duties. Egyptian importers now fill out Form (126) declaring that the exported items are defective or damaged and are to be replaced. However, the exporter of a previously imported good that was damaged or rejected must post a deposit (acceptable to the Customs Authority) guaranteeing importation of a replacement item within two years (renewable) from the date of export. The passage of the new foreign exchange law should abolish this two-year restriction. This is a major improvement over the former situation where replacement products having a different serial number from the re- exported item were subject to full customs duties when re-entering the country, i.e double accounting of custom charges for the same item. In case an item is exported to be refitted and then re-imported, custom duties are paid on the value-added only. If the item is replaced by another used machine, having a different serial number from the exported one, then the re-imported item is subject to full custom fees. IMPORT LICENSES Egypt no longer requires import licenses. In July 1993, the Government cancelled the list of items requiring prior approval before importation. All commodities may be freely imported into Egypt upon payment of the assigned duty, except for those on a list of items banned from import (see "Prohibited Imports" below). EXPORT CONTROLS All Egyptian products can be exported without obtaining export approvals as long as they are not banned from export. Hide, scrap metal (except scrap of stainless steel), and alpaca fibers are the only items banned from export. Quality control of exports is voluntary. An export duty is imposed on certain commodities produced locally in accordance with specified rates listed in Schedule (B) of the Custom Tariff promulgated by Law 351/86 as follows: Sinews and tendons, parings and similar LE 0.60 per MT waste of raw hides or skins Molasses LE 0.60 per 100 KG Raw hides and skins fresh salted and LE 1.20 per MT sheep skin Iron and steel scrap LE 11.00 per MT Nickel scrap LE 11.00 per MT Aluminum scrap LE 11.00 per MT Zinc scrap LE 11.00 per MT Antiques over 100 years old 5% All other kinds of goods are exempt from export duty. IMPORT/EXPORT DOCUMENTATION Decree 275/91 and Law 121/82 stipulate that exporters and importers must be Egyptians. However, companies established under Investment Law 230/89 (which allows for 100% foreign ownership) or Companies Law 159/81 (joint-stock and limited liability companies) are exempt from these regulations. Investment Law 230 and Companies Law 159 companies may import industrial inputs necessary for production and export the products they manufacture. Foreign companies that are not manufacturers (e.g. consultancy firms) may import commodities (e.g. furniture, equipment) as long as it is for office use only. Foreign companies wishing to import commodities for commercial (resale) purposes can only do so through an Egyptian import company. Importers should possess the following documents: 1. An Import Card which is issued by the General Authority for Import/Export Quality Control at the Ministry of Industry. 2. Taxation Card, which is obtained from the Taxation Authority or any of its offices. 3. Three forms of Annex (11) of the import/export executive regulations issued by Ministerial Decree 275/91. Annex (11), the application to finance imports with free currencies, includes information on the type, quantity, price and country of origin of the imported commodities. The importer retains one copy which he/she submits to Customs to release the shipment, the second copy is submitted to the Foreign Trade Department at the Ministry of Economy and Foreign Trade and the third copy is kept with the bank to follow-up on payment. The pro-forma invoice or final invoice should be stamped by the bank. (Note: Investment Law 230 companies must obtain approval from the General Authority for Investment to import material necessary for their operation.) The following documents should be presented to Customs to release imports: 1. Bill of lading. 2. Original invoice. 3. Packing lists. 4. Certificate of origin (optional). 5. Form (EX), which is a bank form, applicable in cases where the bank finances the importation transaction. This form is not required if the importer self-finances the transaction. (Note: This form will be abolished once the President signs the new foreign exchange bill already approved by the People's Assembly.) 6. Content analysis of the commodity, if required. 7. Delivery order from the carrier in return for the bill of lading. 8. Custom procedural certificate, which is a customs form that lists information and data including source and country of origin of imports, name of importer, type of product, port of delivery, value, and quantity of the shipment. Exporters should possess the following documents: 1. An Export Card which is issued by the General Authority for Import/Export Quality Control at the Ministry of Industry. 2. Taxation Card, which is obtained from the Taxation Authority or any of its offices. 3. Original invoice. 4. Custom procedural certificate, which is a customs form that lists information and data on the exported goods. TEMPORARY ENTRY Imports may be admitted into the country under the temporary release system. In order to obtain a waiver of custom duties, manufacturers fill out a special form with the Customs Authority declaring that these imports will be further processed in Egypt and exported as part of a finished product. The importer must deposit a bank guarantee or insurance policy covering the value of applicable customs duties until the final commodity is exported. Imports may be released from Customs under the drawback program. This is different from the temporary release system in that full customs duties are paid on the imported material and the manufacturer does not fill out a special form with Customs. However, there is a one-year time requirement to re-export these imports as part of a final product in order to have the right to reclaim the full amount of the duties paid as well other taxes such as the sales tax. This is a cumbersome procedure and refunding may take one to two months for processing. The agencies administering the program are tasked with the responsibilities of determining then repaying the drawback amount. The Industrial Surveillance Authority carries out the first task; the Customs Authority carries out the second. To refund the amount paid, several administrative requirements must be satisfied: - Details, such as quantities and materials used in manufacturing a unit of the exported products, must be provided to enable Customs to calculate the drawback rate. - Proof of duties paid on the imported quantities must be furnished. - In order to collect an allowance in the drawback rate for wastage and scrap, quantities of such must be verified. In addition, the following documents must be provided: customs import release certificate, certificate of export of product, an export permit, a registered deed of sale from the original importer, and a customs clearance certificate. LABELING, MARKING REQUIREMENTS Ministerial Decree 16/93 addresses labeling and marking requirements of imports as follows: a) For packed items, the package should protect the product. The product should fill the package completely. If the package is wooden, it should be accompanied by an official certificate indicating it is free of wood pests and insects. The following information should be written on each package in clear Arabic letters in a non-erasable manner: 1. The name of the product, its trademark (if any), type of product and its brand. 2. The product's technical data and mode of operation. 3. Data and international marks that should be observed during transportation and handling. 4. Country of origin. 5. Date of production and expiry date. b) The data appearing on equipment, tools and machines should match those appearing on the package. The country of origin should be indicated on each item in a non-erasable manner. They should be accompanied with an Arabic-language catalog indicating the following: 1. An illustrative design of the parts. 2. Mode of assembly and operation. 3. Maintenance procedures. 4. Electrical circuits for equipment that is operated electrically. 5. Safety measures. Products prone to rust and corrosion should be painted with a special protective paint. c) Food products should be packed in appropriate packages which should be clean, intact, and odorless so as to preserve the product and not affect its characteristics. Shipments should be consistent in terms of packaging and weight. The following data should be written on each package in clear non-erasable Arabic letters (and optionally a foreign language): 1. The name of the product, the factory, the trade mark (if any). 2. Country of origin. 3. The name of the brand, its kind and grade. 4. The name and address of the importer. 5. Date of production and date of expiry according to type of product. 6. Method of processing for those products that require such a procedure prior to use. 7. Ingredients of the product, their percentage, concentration according to the type of imported product. 8. Method of preservation, storage conditions, temperatures for preservation of perishable products. 9. Net weight and gross weight according to type of product. 10. Preservatives and additives, if used. 11. The term "Slaughtered according to Islamic Rules" must be written on packages of animal product (except fish). PROHIBITED IMPORTS The import ban list now applies to textiles, apparel and poultry, accounting for approximately 4.1% of total manufacturing and agricultural tradeable goods. As part of its economic reform program, Egypt will remove poultry from the ban list in 1994 and review the ban on textile products in conjunction with GATT negotiations on the Multifiber Arrangement. STANDARDS Domestic industries must comply with the specifications of Egyptian standard definitions. The Egyptian General Authority for Standardization and Quality Control, an autonomous body under the Ministry of Industry, is responsible for issuing industrial quality control certificates for local industries. Adherence to ISO 9000 specifications is optional. Industries wishing to apply ISO 9000 standards should submit a request to the Egyptian General Authority for Standardization and Quality Control, which in turn will provide them with the required specifications and conduct the necessary tests to verify that goods produced meet ISO 9000 standard definitions. Annex (8) of the import/export regulations lists commodities subject to quality control inspection prior to admittance into Egypt. The list consists of 126 items, including food stuffs, spare parts, construction products, electronic devices, appliances, and many consumer goods. Although Egyptian authorities stress that standards applied to imports are the same as those applied to domestically-produced goods, importers report that testing procedures for imports differ, and tests are carried out with faulty equipment by testers who often make arbitrary judgments. Moreover, importers face the problems of ill-defined or unwritten product standards, and backlogs resulting from authorities having limited staff or too few inspection machines to conduct their quality inspections. In general, inspection fees range between 0.5 piasters (PT) per Kilogram to 10 Egyptian pounds (LE) per container, with an average inspection fee of PT 1 per kilogram. (Note: There are 100 piasters to a pound, and 3.38 pounds equal one US dollar). The inspection fee for goods imported for industrial purposes is lower than that applied to goods imported for retail purposes. Ministerial Decree 99/94 exempts from quality control inspection industrial inputs imported by factories. In contrast, the same products, if imported for resale, are subject to inspection. Imports for personal or private use are exempt from quality control inspection. Following is a list of the items that are subject to quality control inspection: Live animals; meat and entrails thereof; fish, crustacea and mollusks (fresh, frozen and chilled, dried, salted, smoked, preserved and preparations thereof); milk and dairy products; fresh eggs; edible vegetables, plants, roots, and tubers; edible fruits and nuts; grains except seeds (wheat, others); wheat flour and cereal flour; starches; inulin; oil seeds and fruits; lupines; soapwart; watermelon seeds; animal fat, tallow, stearine, margarine; glycerin; vegetable and hydrogenated oils; animal or vegetable hydrogenated oils; cane sugar, beet sugar and other sugars in solid, or liquid form whether natural or industrial; sugar confectionery without cocoa; cocoa and cocoa preparations; tapioca and substitutes from starch; food preparations of grains, wheat, starch and pies; food preparations of edible plants, vegetables and fruits; miscellaneous edible preparations; alcoholic beverages, spirits and vinegar; tobacco and manufactured tobacco; marble, granite, and other stones; cement; sodium hydroxide; sodium carbonate; sodium bicarbonate; benzene "benzol", toluene; tanning and dyes; printing and writing inks; perfumery, cosmetics and toilet preparations, distilled odoriferous water, aqueous preparations of, odoriferous oils; soap; industrial detergents, cleaning preparations; candles; gelatin; glues; matches; polyvinyl chloride; compressed phenol powder (formaldehyde); wall and floor coverings, formica; insulated containers (coolman); plastic domestic, culinary and bathroom tubes and fixtures; fire hoses; conveyor belts; tires; tanned leather; wood, carpentry and wood articles including parquet floors and prefabricated wood buildings; printing and writing paper, carbon paper; cartons, boxes and cases (of paper); flax; woven fabric of silk; flax, jute or other vegetable textile fibers; tapestries, kilims; abrasive sheets; articles of cement and asbestos-cement; brake pads; pipes, conduits, pipe fittings, and parts thereof of porcelain or china; ceramic (glazed and unglazed); ceramic sanitary fixtures; domestic containers and articles of porcelain, china or glass; safety glass; glass containers; steel cutters; bars and rods of iron for building; iron pipes and tubes and fittings; structures and parts of iron or steel; containers for compressed gas; iron or steel chains and parts thereof; iron or steel nails and tacks; iron springs and leaves of springs; domestic stoves, parts thereof and separate parts; iron or steel sanitary ware; aerosol cans; files; razor blades; tableware (spoons, forks); padlocks, locks and clasps; file and card cabinets and drawers and the like; domestic lamps that operate by combustion of petroleum gases; soldering rods; steam boilers and supplementary parts; engines and their separate parts; all types of pumps and parts thereof; air conditioners and parts thereof; domestic refrigerators, freezers and heat- insulating containers; domestic heaters and parts thereof; liquid and gas filters and parts thereof; washing machines (dishes, clothes) and parts thereof; fire extinguishers and accessories; elevators and parts thereof; domestic taps, cocks and valves and gas actuators; safety valves for butagas bottles and parts thereof; alloys; electric equipment (generators, transformers) and parts thereof; ballasts; energy generating cells; electric storage batteries; electromechanical domestic appliances and parts thereof; internal combustion engine spark plugs; electric irons; electric heating plates; electric water immersion heaters; domestic heating containers; hair dryers and parts thereof; radios, TVs and parts thereof; tape recorders; radio-cassettes; electrical apparatus for switching, automatic circuit breakers, starters, isolating make and break switches; electric lamps; copper wires and cables; car and tractor chassis; parts and accessories for motor vehicles; motorcycles including those with engines and additional engines; bicycles, parts thereof and spare parts; trailers to transport passengers and commodities; spectacle lenses and parts thereof; tapes (to record sound/video); magnetic computer discs; clocks and watches and parts thereof; wood and metallic furniture; mattress and mattress supporters (quilts, pillows, cushions); tooth brushes; ball point pens; lead pencils and crayons; lighters; and domestic pressure cookers. FREE TRADE ZONES/WAREHOUSES Law 43/74 allowed the establishment of free zones in Egypt. The law was superseded by Investment Law 230/89, which regulates operations in the free trade zones of Egypt. It allows for storage, warehousing, mixing, repacking, assembly, and manufacturing for export; and provision of services to firms located in the free zones. There are eight free trade zones in Egypt: Cairo (Nasr City), Alexandria, Port Said, Suez, Ismailia, Damietta, Safaga, and Sohag. Goods exported from or imported into the free zones are not subject to normal import/export customs procedures nor to customs duties and other taxes and fees. Likewise all instruments, machinery, equipment, and transportation equipment necessary for establishments authorized within the free zones are exempt from customs and taxes. Provisions of the labor law do not apply to companies operating in the free zone, nor are they subject to currency transaction controls. Commodities manufactured and/or stored in the free zones are considered "imports" subject to full customs duties if they enter Egypt. The Customs Authority supervises both public and private bonded warehouses. The Ministry of Finance authorizes establishment of the warehouses, specifying the site of the bonded area, conditions of stowage, storage charges, administrative charges, expenditures, guarantees to be presented, and other conditions relating to warehousing under bond. The Customs Authority supervises both public and private sector bonded warehouses. Imported and domestically-produced commodities, which may be bonded in either public or private sector bonded warehouses, may not be withdrawn from bond unless the necessary taxes and fees are paid or a suitable bank guarantee is provided and accepted by Customs. SPECIAL IMPORT PROVISIONS None other than those described above. MEMBERSHIP IN FREE TRADE ARRANGEMENTS Egypt is not a member of any free trade arrangement.