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Trade & Investment Regulations

Trade Regulations
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.

Egypt has restrictions for most service sectors in which it has made GATS commitments. These restrictions place limits on foreign equity in construction and transport services (foreign capital equity should not exceed 49 percent of the total capital of some activities). Egypt restricts the employment of non-nationals to 10 percent of the personnel employed by a company. 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.

In 1998, the Egyptian Government 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. Plans to prepare the four state -owned insurance companies for privatization have made slow progress. In December 2004 the Minister of Investment, responsible for privatization of public and joint venture companies, announced government plans to privatize public insurance companies. Senior insurance officials now predict the first privatization will take place by mid-2007.

Following the various asset sales, mergers, acquisitions and divestiture of state shares, there are currently 39 banks in Egypt. 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 to reduce the number of banks in Egypt to 21 banks in the next five years. 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 mandating that banks unable to meet this requirement either merge with other banks or exit the market. The June 2005 deadline for banks to meet the capital increase was finally adhered to after several postponements. Six banks failed to achieve the new threshold and have or are still 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. As of the end of 2005, 11 small banks had been merged into larger banks and the Central Bank had begun legal procedures to liquidate branches of three foreign banks that had not met the capital requirement. The GOE has also been proceeding with plans to divest its shares in joint venture banks. To date, eight joint venture banks have been divested of public shares.

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. Until recently, however, progress on privatization has been slow. The government appointed new, western-trained senior management teams for the four banks. In October 2006, after a one year delay, the first public bank – Bank of Alexandria – was privatized through a multiple round auction, that concluded with the sale of 80 percent of the Bank’s shares to the Italian bank, Sanpaolo IMI. The downsizing and privatization of Egypt's banking sector should strengthen it and improve implementation of market-based financial operations.

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.

Telecommunications services have expanded rapidly in the past three years as the sector has been liberalized and opened to international competition. The GOE began dismantling its state-owned Telecom Egypt monopoly in December 2005 by privatizing 20 percent of its assets.

Private-sector firms participate actively in Internet services and cellular services. Foreign firms compete 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, however no agreements have yet been signed. In February 2003, Egypt’s parliament approved a new telecommunications law (Law 10). It stipulated, in compliance with Egypt's WTO commitments, that Telecom Egypt relinquish its monopoly status as Egypt’s domestic operator and sole international operator by January 2006 and provide for greater price flexibility for Telecom Egypt shares in a future public offering. Steps are underway to implement the 2003 law, but the government has not yet issued licenses for new operators. In June 2002, Egypt acceded to the WTO Basic Telecommunications Agreement (BTA), which requires the liberalization of telecommunication services and full autonomy of the national telecom regulatory authority by January 2006. Despite the
deadline, in March 2006 the Minister of Communication and Information Technology announced that a study concerning the viability of a second license for a fixed-line operator would not be carried out before 2008.

In April 2003, Egypt joined the WTO Information Technology Agreement (ITA), which requires the eventual phasing out of tariffs on all information technology imports from WTO members. Egypt has made significant progress in meeting its WTO telecommunications-related commitments. More progress is required to achieve full autonomy in National Telecommunication Regulatory Authority (NTRA) operations.

In the cellular service market, which currently consists of two private GSM operators, the government awarded a third license through a public tender in July 2006. The license stipulates 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.

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, and ship repair, and, increasingly, container handling. The new Ain Sukhna port is the first privately owned and operated Egyptian port. Another private port, East Port Said port, was inaugurated in October 2004. 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 has agreed to begin preliminary discussions regarding an Open Skies agreement although these talks had not begun as of November 2006.

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. One of these, at Marsa Alam, opened at the end of 2001. The Egyptian Government plans to increase the number of airports in the country from the current 18 to 25 over the next decade.

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. 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).

The Egyptian Government 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.

Trade Agreements
Egypt is involved globally in several intra and inter- regional trade agreements, both multilateral and unilateral, including preferential trade agreements with the E.U., the U.S., Arab, African and European countries, some of which are:
Agreements with Arab countries
The General Agreement on Tariffs and Trade (GATT)
The General Agreement on Trade in Services (GATS)
Europe Mediterranean Partnership Agreement
The Common Market for Eastern and Southern Africa (COMESA)
Trade and Investment Framework Agreement (TIFA)
Pan Arab Free Trade Area (PAFTA)
Moreover, Egypt has signed several bilateral agreements with Arab Countries; Jordan (December 1999), Lebanon
(March 1999), Libya (January 1991), Morocco (April 1999), Syria (December 1991), Tunisia (March 1999). Additionally,
in 1995, Egypt and China entered into a trade accord. Egypt also signed an economic treaty with Russia.
14 Dec 2004, Egypt, USA and Israel signed  the Qualified Industrial Zones (QIZ) protocol.

Investment Regulations
Egypt offers first-time investors expedited approval to establish operations, and special advantages and incentives are given to investors in 16 priority sectors (among them agriculture, housing, transportation, petroleum, and computer software). Many incentives are geographically based to encourage investors to locate outside of the greater Cairo area. For example, investors locating businesses in parts of Upper Egypt can receive 20-year tax holidays. A dozen new industrial zones have been built in satellite cities in the desert areas outside of Cairo and Alexandria. The Income Tax Law enacted in June 2005 eliminated some of the incentives in the Investment Incentive Law, namely all corporate tax exemptions and tax holidays that the latter law had authorized for newly established companies. The 2005 tax law also repealed tax deductions extended to companies listed on the stock exchange. The tax incentives were not eliminated retroactively, however so all existing companies will continue to receive their tax incentives until the end of the period stipulated when the company was established.

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.

Drawback System
Exporters may also take advantage of the drawback system. This procedure is different from the temporary admission system in that full customs duties are paid on the imported materials 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 as other taxes such as the sales tax
.This procedure is cumbersome and refunding may take up to six months for processing. The agencies administering the program are tasked with the responsibilities of determining and then repaying the drawback amount. The Industrial Surveillance Authority carries out the first task, while the Customs Authority carries out the second. A delegate from Customs has to be present during the manufacturing process. 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.

To speed up the reimbursement process, the Egyptian Government introduced in October 1999 a new "tax rebate" system, by means of which exporters could be reimbursed according to pre-specified rates for each industry. The tax rebate system currently covers more than half of the major exported commodities.

Prohibited and Restricted Imports
Egypt lifted its ban on apparel imports on January 1, 2002, replacing it with excessive specific rate duties. In January 2004, the Egyptian Government issued a decree replacing these specific-rate duties with ad valorem (percentage of value) tariffs consistent with Egypt's commitments to the WTO.

Customs Regulations and Contact Information
Egypt announced implementation of the WTO customs valuation system in July 2001. 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.
Current importing regulations require that every component of a product be inspected, regardless of the compliance history of the product, country of origin, exporter, shipper or the importer. No import can be put up for direct sale on the Egyptian market without first proving that it conforms to Egyptian standards, if it is on the mandatory list. If there are no Egyptian standards that suit the imported product, then it must be defined using the standards of one of the international organizations that Egypt is affiliated with e.g. ISO, IEC, and Codex Alimentarius. On arrival of a shipment to the Egyptian ports, the process that takes place is as follows:
1) A committee from the Customs and Security bodies checks the shipment for security reasons and determines whether there are any illegal products.
2) The importer presents Customs with the documentation required to clear the shipment.
3) After reviewing these documents, Customs either clears the shipments for release to the importer directly or directs the consignment to other bodies for testing and inspection. Custom duties are then assigned and are paid in Egyptian pounds.

Source: The U.S. Commercial Service, USA / Ministry of Investment, Egypt.

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