Overview of Egypt's Regional Trade Agreements

1-Pan-Arab Free Trade Area (PAFTA)

The Pan-Arab Free Trade Area was established by the Arab League’s Economic and Social Council on 19th February 1997 by its Resolution No 1317, aiming at enhancing joint economic gains to Arab States and benefit from developments in world trade and the establishment of regional and international economic blocks.

Currently 17 members of the Arab League are participating in the FTA, with Algeria just finalising the administrative procedures to become the 18th member (expected by the end of 2005).

Market Access: Tariff dismantling for all industrial and agricultural products started in January 1997 with a 10% customs duties reduction and finalised on 1st January 2005 with a final 20% customs duties reductions. Currently all products meeting the transitional rules of origin (products should have at least 40% Arab component) can access members' markets duty-free.

Only 6 Member States (incl. Egypt) presented negative lists with products exempted from tariff dismantling, but they were valid for a maximum of 4 years and expired in September 2002. However, three of the countries (Morocco, Tunisia and Egypt) have added some administrative procedures for textiles products in order to obtain duty-free market access. These measures are considered as non-tariff barriers by the Arab League, who clearly stated that they should be removed.

PAFTA Structure: The PAFTA Agreement is administered by the Arab League’s Economic and Social Council (EcoSoc) with high officials meeting, at least 2x/year. Under the AL EcoSoc, there is one Committee on RoO, and one on NTB, also meeting 2-3x/year. Dispute Settlement procedures have already been finalised. A focal point has been appointed in each MS responsible for dealing with complaints or problems faced by MS companies. If no solution is reached by the focal points, then the EcoSoc will act as arbitrator, if this fails, it goes to the Arab League Court for investment and trade problems.

Current work: The Committee on RoO is currently working in the establishment of detailed RoO. The General Framework has already been endorsed by the EcoSoc and the RoO on agricultural products will be presented in the July meeting for endorsement. The expert group is currently working on the RoO for industrial products, which should be finalised by the end of 2005 and presented to the EcoSoc for endorsement. The possibility to adopt the Pan-Euro-Med RoO as PAFTA RoO was initially discussed, but no agreement reached.

The Committee on NTB is analysing the different customs procedures, import/export documents and costs related to customs clearance aiming at harmonising them in order to enhance trade and investments in the region.

In addition, the Arab League has recently launched an initiative on services liberalisation and nine countries (Egypt, Morocco, Jordan, Lebanon and the Gulf countries) have started the process with the submission of an offer. The next step should be the opening of bilateral negotiations between these countries. Five have already opened bilateral negotiations (Egypt, Lebanon, Oman, Jordan and Kuwait) and Morocco is expected to do so soon. All bilateral offers should be GATS+.

The Arab League will at some point also work on an upgrading of PAFTA into a Customs Union (after 5-6 years).

For more details contact Mr. Kamal Senada, Head of the General Department for Economic Affairs at the Arab League. Tel: +20-2-575-2998, Ext 3610. Email: eldinsinada@gmail.com


2-AGADIR Agreement

In the Barcelona Declaration, the Euromed partners agreed on the establishment of a Euro-Mediterranean Free Trade Area (EMFTA) by 2010. This is to be achieved by means of Association Agreements with the EU and the Med partners, together with free trade agreements between the partners themselves.

In this context, Morocco, Tunisia, Jordan and Egypt declared in May 2001 their intention to set-up a Free Trade Area among themselves towards the creation of the EMFTA by 2010. The Agreement was finally signed by the four members on 25th February 2004 and is still awaiting ratification from Morocco to enter into force.

Goals: Total elimination of customs tariffs by 01.01.2006, the harmonisation of laws in economic matters; invigoration of trade exchanges; promotion of industrial texture, economic activities and employment; improvement of productivity and living standards; coordination of sectorial and global economic policies, especially in the fields of foreign trade, agriculture, industry, finance, taxes and customs.

AGADIR Structure: The agreement is governed by four different bodies: The Committee of the Ministers of Foreign Affairs (defines political procedures for the development of the agreement), the Committee of the Ministers of Foreign Trade (supervises implementation and defines the means to reinforce cooperation and integration), the Technical Committee (follows-up the implementation of the agreement and dispute settlements) and the Technical Unit (based in Amman, ensures the follow-up of the implementation of the agreement and resolutions of the Committees of the Ministers of Foreign Affairs and Foreign Trade)

Rules of Origin: A key element of the agreement is the adoption of the pan-euro-med protocol as the one governing Rules of Origin, allowing countries to benefit from diagonal cumulation. Products coming from Morocco, Tunisia or Jordan will be considered as originating in Egypt, provided that the working or processing carried out in Egypt goes beyond the operations considered to be insufficient working or processing, according to Article 7 of the pan-euro-med protocol .

This means Tunisia could use Egyptian fabrics to produce Tunisian read-made garments that will enter the EU duty-free. At the same time, Egypt could use components originating in Morocco or Jordan to produce a machine, which will have Egyptian origin and duty-free access to the EU.

Once the Agreement is ratified by Morocco and the pan-euro-med protocol on RoO is transposed into each one of the bilateral Associations Agreements with the EU, the four members will be able to cumulate between them.

For more details contact the Amman-based Technical Unit for the implementation of the Agreement.


3-QIZ Protocol

Qualifying Industrial Zones (QIZ) are geographically designated areas in Egypt determined by the Egyptian government and approved by the US government where industrial products originated in Egypt and satisfying a minimum 11.7% Israeli content are granted duty-free entry into the U.S. customs territories.

QIZ was first introduced in 1996, when the U.S. Congress, aiming at reinforcing peace in the Middle East, issued decree 6955, which authorized duty-free entry into the U.S. for the industrial products manufactured jointly with Israel and originated in Egypt or Jordan. In 1999, Jordan reached a protocol to enforce the above-mentioned decree.

Having observed the positive economic results of the QIZ protocol with Jordan and bracing for the phasing out of the quantitative quotas on textile (The WTO Agreement on Textile and Clothing, ATC) that posed a great threat to the international competitiveness of the Egyptian textile and ready-made garment industry, the Egyptian Government decided to negotiate a QIZ protocol, which was signed between the three parties on 14 December 2004.

The QIZ initiative does not have any expiration date. It does not need to be renewed by Congress every few years like the Generalized System of Preferences (GSP) or other trade legislation.

QIZ Advantages: The QIZ initiative currently grants immediate tariff and quota-free access to the U.S. market to goods “substantially transformed” that are produced in the Qualified Industrial Zones and meet specific rules of origin requirements. Therefore, the immediate saving is the amount of the U.S. tariff on any specified good. Generally speaking, U.S. tariffs on clothing and textile goods are relatively high, which makes production of these goods in QIZs especially attractive.

Requirements: In order to benefit from the duty-free access to the US market, there are certain requirements that should be met by Egyptian companies:

1- Companies should be located in one of the approved Qualified Industrial Zones. There are currently seven QIZs: four in Greater Cairo (Shubra Al Kheima, Nasr City, 10th of Ramadan City, South Giza and 15th of May City), two in Greater Alexandria (Borg el Arab and Alexandria), and one in Port Said. In addition, there are five factories outside the QIZs also qualified for exporting free of customs duties to the US: Cairo Cotton, Dice, E.T.C., Samir Flannels, and Delta.

2- Companies within a QIZ should be registered first at the QIZ Unit created by the Egyptian Ministry of Foreign Trade and Industry. The QIZ Joint Committee is the authority responsible for issuing a QIZ certificate, valid for a period of one year, recognizing that the company is located within a QIZ.

3- The sum of materials and direct costs of processing a final product in a QIZ and Israel shall be at least 35% of the product’s value (ex factory price). At least one third of this percentage (11.7%) should come from an Israeli component. In this regard, not only inputs, but also services such as Technical Assistance provided by an Israeli company or transportation costs will count on the calculation of the Israeli minimum content.

Registered firms: There are currently 464 companies approved to manufacture and export to the US under the QIZ Agreement, located mainly in Alexandria and 10th of Ramadan QIZs (28% of total companies each). By industry, textile and ready-made garments companies are way ahead any other sector, accounting for almost 80% of total approved companies, followed by foodstuff and base metals manufacturers (3% of total companies each).

QIZ unit in MoFTI: In addition to effectively administrate all terms and aspects of the QIZ Protocol, verifying that companies are complying with the rules governing the Agreement, the Unit is in the process of providing a range of services to maximize the value that companies can obtain from it. In this regard, the Unit will focus on promoting local and foreign direct investments, providing matchmaking for companies seeking partners (a key issue taking into account that only 40% of the approved companies have well established export relations with the US and there were almost no business relations with Israel) and supporting trade and industrial policies and corporate decision making.

The Unit is also trying to promote those sectors which, due to high US customs duties, could gain a price advantage over competing producers and where US imports in high volumes. In addition to textiles, food and beverages, leather products, footwear and glassware have been identified as sectors that could maximize the benefits of the Protocol in the short term.

Egypt vs Jordan: There two major differences between the Jordanian QIZ Protocol and the Egyptian one in terms of implementation: the minimum Israeli content and the verification of its compliance by a company. In the case of Jordan, the compliance with the minimum Israeli component is verified on a product-by-product basis, meaning that each unit exported to the US needs to have a minimum 8% Israeli component. In the Egyptian QIZ this compliance is verified on a quarterly basis for each factory, which means that an Egyptian company could export 100% Egyptian consignments as long as they use a minimum 11.7% Israeli component on their total quarterly exports.

A first audit of the fulfilment of the Protocol's rules by approved companies will be carried out on 15th July 2005. Egyptian companies are supposed to police themselves and follow the rules, as self-declaration is possible and only spot checks will be carried out by US customs (US Embassy has recognised that it will be difficult for their customs to verify if QIZ requirements are fulfilled by Egyptian companies).

For more details visit the QIZ Unit Website: www.qizegypt.gov.eg or contact MrAli Awni, Head of the QIZ Unit. Tel: +20-2-792-11-77. Email: ali.awni@mfti.gov.eg


4 Common Market for Eastern and Southern Africa (COMESA)

COMESA was established in December 1994 to replace the former Preferential Trade Area (PTA) which had existed since 1981. COMESA was established as an organisation of states which have agreed to co-operate in developing their natural and human resources. Its main focus is on the formation of a large economic and trading unit capable of overcoming some of the barriers that are faced by individual states.

The FTA was achieved on 31st October, 2000, when nine of the member States, namely Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia and Zimbabwe eliminated their tariffs on COMESA originating products, in accordance with the tariff reduction schedule adopted in 1992 for the gradual removal of tariffs in intra-COMESA trade. Burundi and Rwanda joined the FTA on 1st January, 2004.

Rules of Origin: Goods eligible for duty-free treatment under the COMESA FTA are those that meet the COMESA RoO. Goods acquire originating status if they meet any of the following requirements:
• Goods are wholly produced or obtained in a member State; or
• Imported materials used in the production of final good does not exceed 60% of the total cost of all materials used in their production; or
• A minimum of 35% domestic value added of the ex-factory cost of the goods is achieved; or
• If goods produced in member States are classified after the manufacturing process under a tariff heading other than the one under which they were imported; or
• A minimum of 25% domestic value added of the ex-factory cost of the goods is achieved for goods of particular importance to the economic development of the member States.

Article 45 of the COMESA Treaty requires Member States to establish a Customs Union over a transitional period of ten years from the entry into force of the Treaty. In preparation for this Customs Union, the Eleventh Meeting of the Council of Ministers held in Cairo, adopted a Road Map that outlined programmes and activities whose implementation was necessary before the launching of the Union. A significant amount of work has been undertaken to date, regarding the common tariff nomenclature (based on the International Harmonised System of 2002), common valuation system (15 Member States have already adopted the WTO Valuation Agreement as their customs valuation system), customs rules and procedures (Customs Management Act adopted by members) and elimination of non-tariff barriers (adoption of a programme for relaxation and elimination of non-tariff barriers)

While there is agreement on the Common External Tariff (CET) target rates for capital goods (0%) and raw materials (0%), work is ongoing on rates for intermediate and finished products. With regard to the rates for intermediate products, many of which are direct inputs for industry, there is a need to define a rate that will ensure industrial competitiveness. In that regard, an exercise is ongoing that will provide for exceptions, exclusions and derogations. With regard to the rates for finished products, there is agreement to harmonise tariffs in the range of 25-40%.

For more details visit COMESA Website: www.comesa.int