CAIRO: Egypt’s Holding Co. for Spinning and Weaving is taking legal action against foreign exporters it accuses of dumping yarn into the local market.
The anti-dumping case is raised to guarantee fair competition and to protect public sector companies from bankruptcy, a report by Egynews.net cited company officials as saying.
Dumping occurs when a product is exported to another country and priced below local market value, flooding out local manufacturers or forcing them to drop prices to remain competitive.
According to the World Trade Organization, it “does not pass judgment” on dumping practices, but focuses “on how governments can or cannot react to dumping.” In other words, measures can be taken domestically to protect local industry.
“[Local] companies are unable to compete against the imported yarn and are [resorting] to dropping prices dramatically,” Mohsen Gilani, chairman of the holding company, told state-owned Al-Ahram newspaper.
According to Gilani, this threatens companies in Egypt along with the “interests of about 53,000 Egyptian workers.”
At a time when Egypt is in dire need of foreign direct investments to return to the market that has been battered after the January 25 uprising, Magda Kandil, executive director for the Egyptian Center for Economic Studies, said the case may have detrimental consequences.
“This is not the right way to go about it. There should be discussions with the trade minister and other officials. If we start this process of suing people for what the law [allows], we will continue to scare away foreign investors,” she said.
Gilani said although he cannot stop the import of yarn as the country is bound by international trade agreements, he can raise the issue of dumping in order to prove that damage has been done to domestic production.
Kandil suggested that if public companies somehow feel disadvantaged or are affected by anti-competitive behavior, they should take it up with their respective ministries and lawmakers.
“If laws are problematic and they put public companies at a disadvantage, new laws should be drafted. They should be discussed in parliament and by ministries, then we can see if they can change,” she said. “This is, however, up to the officials involved in the law-making process along with the legislatures.”
“Law should not be subject to change just because the political system has changed,” she stressed.
According to Kandil, suing investors for simply abiding by what the law dictates is very “problematic” especially in these turbulent times when the Egyptian economy continues to remain volatile.
Instead of resorting to legal measures, there are other techniques that may help alleviate the situation.
“The government could increase taxes for some foreign producers, but they have to do it selectively,” she added. “The worst thing to do at a time when you’re trying to encourage foreign direct investment is to randomly increase taxes and punish businesses or investors.”
Kandil pointed out that the government could particularly do this in labor-intensive fields.
For example, in companies that require heavy labor, if there is evidence that the foreign company is hiring labor from outside Egypt to take advantage of cheap labor or advanced skills, then they could be held libel for higher taxes.
It is possible for government officials to take this approach with such companies because what they are doing is crowding out Egyptian producers and causing companies to layoff local workers.
Kandil noted that this is how the government and lawmakers could differentiate when taxing certain investors or foreign companies.
One way the government previously tried to promote fair competition between local and foreign producers was increasing fees in customs, for example.
Egypt’s Holding Co. for Spinning and Weaving currently trades with North American countries, in South America, Eastern Europe, parts of Asia, Africa and Western Europe.
In January-February 2011, Egypt’s exports of cotton, clothing, and textiles amounted to $490 million, while imports were at $355 million.
