There is a tendency for Egyptian authorities to postpone the issuance of the automotive industry strategy and discuss it again in light of the European Union (EU) car manufacturers’ observations.
Some sources told Daily News Egypt that the German economic delegation that accompanied chancellor Angela Merkel demanded to postpone the automotive strategy during their visit to Egypt the last weekend.
The sources pointed out that a number of parliamentary and industrial leaders told the German side that Egypt would postpone the issuance of the strategy and discuss it again in light of the EU car manufacturers’ and feeder industries’ observations.
In late February, the European Automobile Manufacturers’ Association (ACEA) and the Egyptian Auto Feeders Association (EAFA) have prepared a joint letter, expressing their complete rejection of the automotive draft law, scheduled to be passed by the Egyptian parliament in the coming period. They said that in the case that the automotive draft law was approved, it would severely harm imports of members of the ACEA, violating the Egyptian-European partnership agreement.
Ahmed Fikry Abdel Wahab, chairperson of FAW Industrial Group and chairperson of the Egyptian Engineering Industries Chamber, expressed his discontent about the reports of the potential postponement of the strategy, noting that it will not reduce the government’s credibility before the manufacturers.
He stressed that the strategy takes into account all the trade agreements signed by Egypt, including the Egyptian-European partnership agreement.
Abdel Wahab added that the delay in the issuance of the strategy over the past two years gave the chance to neighbouring countries to overcome the Egyptian industry and put Egypt’s reputation at stake before foreign automotive companies. It also increased the international investors’ concerns over investing in Egypt, in light of the instability and decline in demand for cars witnessed by the Egyptian market, due to the sharp fluctuations of foreign currency exchange rates against the Egyptian pound.
Abdel Wahab stressed upon the urgent need to issue the strategy as soon as possible.
Farid Eltobgy, chairperson of Bavarian Auto Group, the sole importer of BMW and MINI in Egypt, said that “we review the terms of the strategy in light of the recent developments and the European observations to avoid making big mistakes.”
He added that all the operators in the market are dissatisfied with the delay of the strategy, as it significantly harms the Egyptian industry’s reputation. He called for overcoming all differences and accelerating the issuance of the law, taking into account the demands of all companies operating in Egypt. He noted that the local agents of international companies are able to attract these companies to increase the volume of production and investment in Egypt.
In a further escalation, the European Automobile Manufacturers’ Association (ACEA) and the Egyptian Auto Feeders Association (EAFA) sent a joint letter to Jean-Luc Demarty, director general of the French directorate-general of customs and indirect taxes, expressing their complete rejection of the automotive draft law, scheduled to be passed by the Egyptian House of Representatives in the coming period.
Daily News Egypt obtained the letter in which the two associations said that if the automotive draft law was approved, it would severely harm imports of members of the ACEA, especially since the aim of the Egyptian-European partnership agreement was to create a free-trade zone through full exemption from all industrial tariffs between the European Union (EU) and Egypt.
ACEA expressed its understanding of the goal of the draft law, which is to increase car and auto-parts production in Egypt. This strategy, however, raises huge concerns among its members, since it would lead to the elimination of imports, and sets up new obstacles for European investments into the automotive sector in Egypt.
The letter pointed to several issues: replacing current customs duties on vehicles with a unified customs tariff of 10%—regardless of the existing trade agreements; developing a new industrial development tax ranging between 30% to 135% on cars—according to engine capacity and type of vehicle; and providing an exemption from the industrial development tax for companies that can achieve the local component ratio, the economic quantity of production, and the value of export with incentives ranging between 23% and 57%.
They added that the tax incentive scheme will negatively impact the business activities of members of the ACEA in Egypt. They also noted that the eight-year period, suggested for achieving the required local production rates, starts on the date of publication of the law in official newspapers.
They further stated that the draft law may raise questions about the compatibility of these items with Egypt’s obligations under the World Trade Organization (WTO) agreements and the agreement of the European partnership, identifying four problematic parts in this regard. The directorate-general of customs and indirect taxes agreed that the taxes proposed in the procedures of the draft law are incompatible with Article 3 of the General Agreement on Tariffs and Trade (GATT), and with Article 20 of the Egyptian-European partnership agreement, which was also emphasised by the legal department of the European commission.
The ACEA renewed its opposition to the planned tax incentives for the automotive sector in Egypt; however, it stressed its strong support of trade and investment relations between Egypt and the EU.
The two associations expressed their concerns over the additional administrative burden imposed by the Egyptian Customs Authority, which led to the cancellation of some imports due to high customs duties.
They called for the EU to negotiate with Egypt to reconsider the application of this strategy, or make the necessary arrangements to ensure that Egypt will fulfill its international obligations.