This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 10 CAIRO 009302 
 
SIPDIS 
 
STATE FOR NEA/ELA and EB/MTA 
USTR FOR BLUE AND SAUMS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EG USTR
SUBJECT:  2006 NATIONAL TRADE ESTIMATE REPORT FOR EGYPT 
 
REF: STATE 193384 
 
------------- 
TRADE SUMMARY 
------------- 
 
¶1.  From January to August 2005, the U.S. trade surplus with 
Egypt reached $900 million.  Exports to Egypt totaled $2.0 
billion for this period, representing a 1.7 percent decrease over 
the same period of 2004.  U.S. imports from Egypt for the same 
period totaled $1.1 billion, a 48 percent increase over the 
corresponding period in 2004.  Egypt ranks as the 39th largest 
export market and the 63rd largest import market for the U.S. 
 
¶2.  In 2004, U.S. exports of goods to Egypt totaled $3.1 billion, 
while imports from Egypt were $1.3 billion.  The stock of U.S. 
foreign direct investment in Egypt, concentrated largely in the 
mining and oil/gas sectors, reached $4.2 billion in 2004 up from 
$3.0 billion in 2003, and $2.9 billion in 2002. 
 
--------------- 
IMPORT POLICIES 
--------------- 
 
¶3.  Over the past decade, the Government of Egypt (GOE) has 
gradually implemented a number of import policies to promote 
greater trade liberalization.  The list of goods requiring prior 
approval before importation was eliminated in 1993.  Egypt became 
a member of the World Trade Organization (WTO) in 1995.  In 
September 2004, Egypt significantly reduced tariffs to become 
fully compliant with its WTO/General Agreement on Tariffs and 
Trade commitments.  Progress in economic reform was halting 
during the last several years, but received renewed impetus with 
the appointment of Prime Minister Ahmed Nazif and a new 
ministerial economic team in July 2004.  Under the leadership of 
Prime Minister Nazif, the GOE has taken positive steps (outlined 
below), but problems remain that add to the cost of doing 
business.  The GOE will have to continue efforts to reduce red 
tape, reduce corruption, reform the cumbersome bureaucracy, and 
eliminate unreasonable and excessive Egyptian health and safety 
standards. 
 
¶4.  In January 2003, the government partly floated the Egyptian 
Pound (LE).  Both government and business hoped the move to a 
flexible exchange rate would improve access to foreign exchange, 
but foreign exchange liquidity and turnover remained problematic 
until a new Central Bank Governor was appointed in December 2003. 
During 2004 the foreign exchange market stabilized with increased 
availability of hard currency and the disappearance of backlogs 
in business requests.  By December 2004 the parallel foreign 
exchange market, which had emerged in 2001, had largely 
disappeared and the official U.S. dollar exchange rate stabilized 
at LE6.25/$, with the pound gradually strengthening to LE5.75/$ 
in late 2005.  In September 2004, Egypt established an interbank 
market for foreign exchange, and formally adopted a convention 
governing its trading in December 2004.  This step indicated the 
transition of Egypt to a liberalized exchange rate system, 
encouraged by a strong balance of payment performance.   Prime 
Ministerial decree 506 of 2003, which established a surrender 
requirement for all foreign exchange generating transactions, was 
annulled in December 2004.  Repeal of this restriction was 
necessary to bring Egypt into compliance with IMF obligations 
that prohibit restrictions on payments and transfers for 
international transactions, discriminatory currency arrangements 
or multiple currency practices unless otherwise approved by the 
IMF.  There are no reported delays in firms' requests for foreign 
currency for loan repayments or imports, which have increased by 
32.3 percent from fiscal year 2003/2004 to fiscal year 2004/2005. 
 
------- 
Tariffs 
------- 
 
¶5.  On September 8, 2004 the GOE announced a new tariff 
structure.  The government removed services fees and import 
surcharges, reduced the number of ad valorem tariff rates from 27 
to 6, dismantled tariff inconsistencies, including sharp 
escalation and reverse progression on tariff rates, and 
rationalized national sub-headings above the six-digit level of 
the Harmonized System (HS).  The new tariff structure includes 
six tariff rates, pegged to the degree of processing, that range 
between 2 percent on raw materials, spare parts, and primary 
feeding products and 40 percent on durable consumer goods.  The 
changes in tariffs brought down the officially announced weighted 
average tariff rate from 14.6 percent to 9.1 percent.  The 
government also eliminated services fees and import surcharges 
ranging from 1 to 4 percent.  The GOE replaced its 10-digit 
thirteen thousand-line tariff structure with a six-digit 
structure with less than six thousand tariff lines.  This change 
should reduce disputes over product classification for customs 
purposes.  Additionally, the GOE eliminated export duties on 25 
products that were in short supply on the domestic market. 
Although the Finance Minister announced his intention to reduce 
tariffs further by mid-2005, to date, no further reductions have 
been made.  Meanwhile, a number of high tariffs still exist, 
including duties on alcoholic beverages, tobacco and cigarettes 
and passenger vehicles with cylinder capacity (CC) above 2000. 
 
¶6.  All goods are subject to sales tax ranging from 5 percent to 
25 percent.  Egypt applies a sales tax of 10 percent on high 
quality imported flour that is not applied to locally produced 
flour.  In December 2004, the Ministry of Finance passed an 
amendment to the sales tax law aimed at reducing prices and 
attracting new investment opportunities.  In early 2005, Law No. 
9 for 2005 was issued, which exempted capital goods from the 
sales tax.  The Finance Minister has emphasized that some 
additional amendments to the sales tax will be introduced in 2006 
to unify sales tax categories, establish new tax rebates, and 
raise the minimum requirement for sales tax registration to 
exempt small producers and traders.  The current minimum 
registration amounts are annual sales of LE 150,000 for traders 
and LE 54,000 for producers and service-providers. 
¶7.  In January 2004, the GOE formally repealed a long-standing 
ban on commercial clothing and fabric imports and replaced per- 
piece tariffs on clothing (which the U.S. had challenged in the 
WTO in December 2003) with ad valorem (percentage of value) 
tariffs consistent with Egypt's commitments to the WTO.  In 
December 2004 Egypt reduced tariffs for certain textile and 
apparel products and committed to a further round of tariff cuts 
for additional textile and apparel products, which is expected to 
take place during the first parliamentary session in 2006. 
Currently the tariff rate on apparel is 40 percent.  A February 
2004 ministerial decree required companies wishing to export to 
Egypt to register with the Egyptian General Organization for 
Import and Export Controls (GOIEC) and to certify their 
compliance with international labor, health, and environmental 
standards through a on-site inspections by GOIEC inspectors.  The 
decree was amended in October 2004 to remove the inspection 
obligation while maintaining the registration requirement. 
 
¶8.  Tariffs on passenger cars with engines under 1,600cc were 
reduced in September 2004 to a maximum of 40 percent, while cars 
with engines over 1,600cc now have a tariff rate of 135 percent. 
The tariff rate on poultry was reduced to 32 percent, although 
the GOE maintains a ban on U.S. poultry imports citing Halal 
concerns (see below).  There is a 300 percent duty on wine for 
use in hotels, and a tariff ranging between 1,200 and 3,000 
percent on alcoholic beverages for general importers.  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). 
 
¶9.  High tariffs restrict the competitiveness of U.S. food 
products such as U.S. apples and pears, which face a 40 percent 
ad valorem duty, and U.S. exporters report that Egypt's 
application of sanitary and phytosanitary measures to these 
products are non-transparent and burdensome. 
 
¶10.  In March 2005, the parliament passed legislation which 
included provisions to reduced taxes on soft drinks from a high 
of 60 percent to an effective sales tax rate (after government- 
approved deductions) of about 18 percent. 
 
------------------ 
Customs Procedures 
------------------ 
 
¶11.  Egypt announced implementation of the WTO customs valuation 
system in July 2001. The system has not been fully implemented, 
and importers sometimes face a confusing mix of the new invoice- 
based and old reference-price valuation systems depending on the 
type of imports.  The Ministry of Finance is trying to assist 
customs officials by translating and simplifying the WTO 
valuation system, which uses seven valuation methods.  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.  USAID has funds available for a six- 
year, $30 million customs reform project to support the Ministry 
of Finance's efforts.  The Ministry of Finance is working with 
other donors, including the European Union, on customs reform 
issues.  In this context, a comprehensive amendment of the 
Executive Regulations of the Customs Law has been prepared by the 
Ministry, and is now being circulated in the private sector for 
comment, after which it will be submitted to parliament for 
discussion and ratification.  The amendment is expected to 
address customs valuation and other problems, but as of December 
2005, the amendment had not been submitted to parliament. 
 
¶12.  The September 2003 inauguration of the Cairo Model Customs 
and Tax Center was an important step in modernizing customs and 
tax administration in Egypt.  Taxpayers registered in greater 
Cairo can use this "one-stop shop" to settle income taxes, sales 
taxes and customs for goods passing through any of Egypt's ports. 
Two model customs centers were inaugurated in Alexandria and Suez 
in 2005, and two others, in Dekheila and Port Said, are expected 
to open in 2006. 
 
¶13.  In June 2002, the parliament approved a new Export Promotion 
Law (Law 155).  The law reinforces the coordinating authority of 
the Ministry of Foreign Trade and Industry's General Organization 
for Import and Export Control (GOIEC) for all import inspection 
procedures, though the Ministries of Health and Agriculture 
maintain their own inspection units and procedures.  The customs 
reform unit established under the law continues to work on 
improving clearance regulations, including simplifying the duty 
drawback and temporary admission systems for exporters.  The law 
also established an "export development fund" to promote Egyptian 
exports and increase their share of foreign markets with the 
assistance of the Egyptian Center for Export Development.  A 
budget has been appropriated for the fund to promote capacity 
building in certain export-oriented sectors. 
 
¶14.  In November 2002, the Ministers of Foreign Trade and Finance 
inaugurated the new temporary admissions unit at the Port of 
Alexandria, a first step in a plan to upgrade operation of the 
temporary admissions system at all ports of entry in the country. 
USAID assisted the GOE in setting up three other sites for 
temporary admissions and duty drawback in Suez, Port Said, and 
Damietta.  The three sites have begun operation. 
 
------------------------ 
Import Bans and Barriers 
------------------------ 
 
¶15.  As noted earlier, Egypt lifted its ban on apparel imports on 
January 1, 2002, replacing it with high specific-rate duties.  In 
January 2004 the GOE issued a decree replacing these specific- 
rate duties with ad valorem (percentage of value) tariffs that 
appear to be consistent with Egypt's commitments to the WTO. 
 
¶16.  In 1998, Egypt issued a decree stipulating that passenger 
vehicles can only be imported during their year of manufacture, 
effectively banning the importation of second-hand cars.  In 2000 
the decree was amended adding one year after the year of 
production to the period during which passenger vehicles can be 
imported.  In October 2005, amendments to the executive 
regulations for the Export and Import Law lifted the requirement 
that cars may only be imported from their country of origin.  The 
regulations also allowed 'investors' to import a vehicle for 
private use, without restriction on the year of manufacture, 
providing an approval is obtained by the Chairman of the General 
Authority for Investments and Free Zones.  The still to-be-issued 
customs regulations will allow Egyptians expatriates who are 
returning to Egypt to import their personal cars with a discount 
of 10 percent on FOB value for the first year post-manufacture, 
starting October 1, and 5 percent for every subsequent year. 
 
¶17.  According to the Egyptian Ministry of Health's regulations, 
natural products, vitamins and food supplements are prohibited 
from importation into Egypt in their finished form.  The only way 
these items can be marketed in Egypt is by local manufacturing 
under license, or by sending ingredients and premixes to a local 
pharmaceutical firm to be prepared and packed in accordance with 
specifications of the Ministry of Health. Only local factories 
are allowed to produce food supplements and import raw materials 
to be used in the manufacturing process. 
 
¶18.  Egypt also bans the importation of used and refurbished 
medical equipment and supplies.  The ban does not differentiate 
between the most complex computer-based imaging equipment and the 
most basic of supplies.  At present, even new medical equipment 
must be tested in the country of origin and proven safe before it 
will be approved for importation into Egypt.  These regulations 
also apply to medical equipment being donated or sold charitably 
at cost.  FDA approval is key to having medical products 
registered, although the Ministry of Health may do additional 
testing on any medical device. 
¶19.  Egypt continues to block imports of U.S. poultry and poultry 
products based on reported concerns that U.S. industry cannot 
verify that it meets Egyptian Halal requirements.  Despite 
technical meetings and a June, 2003 written submission on steps 
by U.S. industry to assure Halal treatment, the ban continues. 
It was discussed at Trade and Investment Framework Agreement 
(TIFA) meetings in November 2005, and the GOE gave assurances 
that it would address this issue in the near future. 
 
--------------------------------------------- - 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
--------------------------------------------- - 
 
¶20.  Standards are established by the Egyptian Organization for 
Standardization and Quality Control (EOS) in the Ministry of 
Foreign Trade and Industry.  However, verification of compliance 
is the responsibility of agencies affiliated with various 
ministries, including the Ministry of Health, the Ministry of 
Agriculture and, for imported goods, GOIEC in the Ministry of 
Foreign Trade and Industry. 
¶21.  Egypt has increased efforts to bring mandatory regulations 
into conformity with international standards.  Of the 3,387 
standards, 387 are Egyptian technical regulations or mandatory 
standards.  Of these, the majority concern food products, 
engineering goods, and textiles and clothing.  In the absence of 
a mandatory Egyptian standard, Ministerial Decree Number 180/1996 
allows importers to choose a relevant standard among seven 
international systems: including ISO, European (EN), American 
(ANS), Japanese (JIS), British, German and, for food, accepts 
Codex standards.  Importers, however, report that despite having 
met international standards and/or displaying international 
marks, products often are subjected to standards testing upon 
arrival at port.  Product testing procedures are not uniform or 
transparent, and inadequately staffed and poorly equipped 
laboratories often yield faulty test results and lengthy delays. 
Procedures seem to be particularly cumbersome for the products 
falling under the purview of the Ministry of Health. 
¶22.  Egyptian standards are reviewed periodically, usually once 
every five years, to ensure their relevance to current 
requirements.  In December 2004, Egypt embarked on a program to 
ensure that all its standards comply with international 
standards.  The EOS  completed the examination of all 387 
mandatory standards and 2,000 of the voluntary standards in 2005. 
It began reviewing the remaining 1,000 voluntary standards at the 
beginning of 2006. 
 
¶23.  In addition to standards, the EOS also issues quality and 
conformity marks.  The conformity marks are mandatory for certain 
goods that can affect health and safety.  The quality mark is 
issued by the EOS upon request by a producer and is valid for two 
years;  goods carrying the mark are subject to random testing. 
 
¶24.  Egypt's testing requirements improved with the issuance in 
October 2005 of new import/export regulations, which completely 
replaced the old regulations with more transparent and 
liberalized rules designed to facilitate trade.  The new 
regulations reduced the number of imported goods subject to 
inspection by GOEIC.  They also permitted importers to rely on 
certifications of conformity from any internationally accredited 
laboratory inside or outside of Egypt for those goods still 
subject to inspection by GOEIC.  As noted above, although the 
inspection regime has been liberalized, in practice, the new 
regulations are not applied consistently or uniformly. 
 
The new import/export regulations also transferred responsibility 
for issuing and reviewing certificates of origin from GOEIC to 
the Egyptian Customs Administration, introduced a mechanism for 
enforcing intellectual property rights at the border, and 
extended the preferential inspection treatment given to inputs 
for the manufacturing to include inputs for the service industry. 
An explicit list of the chemicals that cannot be imported into 
Egypt was issued with the new regulations, thus clarifying a 
previously ambiguous procedure. 
 
¶25.  In response to U.S. requests, Egypt in 2004 took steps to 
address barriers to imports of U.S. and other foreign textile and 
apparel, including removing costly and complicated labeling 
requirements.  The new export/import regulations eliminated the 
previous registration requirement for garment imports.  In 
addition, fabrics are no longer subject to testing, and the 
requirement that apparel labels include importer and other 
information in Arabic was eliminated.  Egypt also committed to 
expedite the customs clearance process for apparel and textile 
imports. 
 
¶26.  With respect to agricultural products, Egyptian tariff and 
non-tariff barriers adversely impact bilateral trade.  While 
Egypt is a key U.S. agricultural export market and a major 
purchaser of U.S. wheat and corn, certain imports, like poultry 
parts, are banned, and others, including beef, apples and pears, 
are subject to sanitary and phytosanitary measures that are non- 
transparent and burdensome.  Food imports are sometimes subject 
to quality standards that appear to lack technical and scientific 
justification and exports may have to comply with burdensome 
labeling and packaging requirements.  For example, meat products 
can only be imported directly from the country of origin and must 
include details in Arabic sealed inside and listed on the outside 
of the package.  This labeling requirement raises processing 
costs and discourages some exporters from competing in the 
Egyptian market. 
 
¶27.  The Ministry of Foreign Trade and Industry is working with 
other ministries, especially with the Ministries of Health and 
Agriculture, to review sanitary and phytosanitary standards and 
the inspection of food products to ensure WTO-compliance and 
prevent duplicative inspection.  The new export/import 
regulations eliminated the requirement that perishable products 
have at least one-half of their shelf life remaining at the time 
of import, but further amendment of an Egyptian standard may be 
required before this can be fully implemented. 
 
---------------------- 
GOVERNMENT PROCUREMENT 
---------------------- 
 
¶28.  Egypt is not a signatory to the WTO Agreement on Government 
Procurement.  In 1998, Egypt passed a law setting new regulations 
for government procurement to make the tendering process more 
open and fair and to provide the Egyptian Government greater 
value for money in its procurements.  The new law mandates that 
technical factors, not just price, be considered in awarding 
contracts.  The preference shown to parastatal companies has 
diminished, but not been eliminated.  Previously, publicly owned 
companies always received preference.  Under the new law, this 
preference only applies when the bid of a publicly owned firm is 
within 15 percent of other bids. In the Small and Medium Sized 
Enterprises (SMEs) Development Law, issued in 2004, SMEs were 
given the right to supply 10 percent of the value of all 
government procurement denoted in any tender.  Contractors 
receive certain rights under the law, such as speedy return of 
their bid bonds and an explanation of why a competing contractor 
won the bid.  Many concerns about transparency remain, however. 
For example, the Prime Minister can authorize the method of 
tendering for specific entities according to terms, conditions, 
and rules that he determines. 
 
¶29.  In August 2004 the newly appointed Prime Minister issued a 
decree stipulating strict adherence by all government ministries 
to the provisions of the Tenders and Auctions law that limit 
direct orders to cases of national security or emergency.  An 
amendment to the Tenders and Auctions Law is being finalized, 
which will require governmental authorities to fulfill 95 percent 
of the value of procurement within 60 days or pay compensation if 
they fail to do so.  The amendment also stipulates compensating 
contractors for price fluctuations that might occur during the 
first year of  the contract.  The United States and Egypt have a 
working group on government procurement established under the 
U.S.-Egypt Trade and Investment Framework Agreement Council, and 
Egypt supports discussion of transparency in government 
procurement in the WTO. 
 
---------------- 
EXPORT SUBSIDIES 
---------------- 
 
¶30.  The GOE mandated a $43 million subsidy program for Egyptian 
cotton in October 2002 to encourage the use of local cotton by 
textile mills.  The program ended during the first half of 2003, 
with no payments made to growers.  There are no plans to renew 
this program.  The government had imposed restrictions on the 
export of long and medium-long staple cotton to make these cotton 
varieties more available for local mills, presumably sold at 
lower prices than in foreign markets. 
 
--------------------------------------------- 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
--------------------------------------------- 
 
¶31.  Though Egypt is a signatory to many of the international 
intellectual property conventions, intellectual property rights 
(IPR) protection was well below international standards until 
¶2002.  In 2002, Egypt took important steps to strengthen its IPR 
regime through improvements in its domestic legal framework and 
enforcement capabilities.  In May 2002, Egypt passed a 
comprehensive IPR law to protect intellectual property and to 
attempt to bring the country into line with its obligations under 
the World Trade Organization Agreement on Trade Related Aspects 
of Intellectual Property Rights (TRIPS).  The law addresses IPR 
protection in areas such as patents, copyrights (with enhanced 
protection for sound and motion picture recordings and computer 
software), trademarks, geographical indications, plant varieties, 
industrial designs, and semiconductor chip layout design.  With 
respect to certain violations, the law stipulates higher fines 
and prison sentences for convicted violators.  Although the law 
has certain shortcomings, its passage demonstrated a marked 
improvement in Egypt's IPR regime, offering protection for the 
first time for several types of intellectual property.   The 
Executive regulations dealing with patents, trademarks, and plant 
variety protection were issued in June 2003.  Regulations 
protecting copyright and related rights, were issued in June 
¶2003. 
 
¶32.  Responding to Egypt's improved IPR protection, in May 2003 
the United States Trade Representative (USTR) moved Egypt from 
the Special 301 "Priority Watch List" (a designation that Egypt 
had retained since 1997) to the "Watch List."  However, the U.S. 
government was deeply concerned by Egyptian government approval 
in late 2003 for local manufacturers to produce copies of several 
U.S. pharmaceutical products contrary to Egypt's obligations to 
protect the holder of the intellectual property rights of such 
products.  As a result of these approvals, USTR in 2004 again 
elevated Egypt to the Priority Watch List. 
 
¶33.  One issue of concern is the protection of pharmaceutical 
test data against unfair commercial use.  The data protection 
problem appeared to worsen in late 2004.  A court rescinded a 
U.S. firm's exclusive marketing rights for a product pending 
patent approval.  The decision raised concerns, as it challenged 
the first instance in which a government entity had granted an 
innovator company such exclusive marketing rights.   Moreover, 
there were indications that the Egyptian Ministry of Health was 
preparing to approve a significant number of copies of 
pharmaceutical products for marketing in Egypt.  The U.S. 
Government was concerned that such approvals would violate 
Egypt's obligations under TRIPS, its own IPR law, Prime 
Ministerial Decree 2211, and assurances Egypt has given the U.S. 
Government on data protection. 
 
¶34.  Substantial and meaningful progress has been made in 
establishing and strengthening some of the government 
institutions necessary for an effective intellectual property 
regime, and the enforcement of IPR rights has improved in 2005 
compared with 2004.  Provisions of the new IPR Code allowing for 
the protection of pharmaceutical products became effective on 
January 1, 2005.  A modern, computerized Egyptian Patent Office 
operating under the authority of the Ministry of Higher Education 
and State for Scientific Research is capable of receiving and 
examining paper or electronically filed patent applications. 
This office has also significantly improved the quality and 
transparency of Egypt's registration system. 
 
¶35.  Egypt has taken advantage of numerous technical assistance 
opportunities provided by both the USAID-funded IPRA project and 
the United States Patent and Trademark Office (USPTO) on topics 
such as patent examination, writing technical examination 
reports, and the processing of applications under the Patent 
Cooperation Treaty (PCT).  In accordance with its WTO/TRIPS 
obligations, the Egyptian Patent Office opened the "mailbox" for 
pharmaceutical patent applications on January 1, 2005,  and began 
legal and technical examination of the approximately 1,500 
pharmaceutical patent applications in the "mailbox." The PCT 
entered into force in Egypt in September 2003.  PCT applications 
designating Egypt began entering the "national phase" in Egypt in 
¶2005.  Currently, Egypt is the eighth largest filer of PCT 
applications among developing-country PCT members.  In addition, 
the World Intellectual Property Organization (WIPO) has 
designated Egypt as a regional patent training center.  The 
Patent Office is also in the process of adopting a manual of 
patent examination procedures to promote quality, consistency, 
and transparency. 
 
¶36.  The Egyptian Trademark and Industrial Designs Office, as 
well as market inspectors responsible for non-copyright related 
IPR enforcement, are located in the Ministry of Supply and 
Internal Trade.  In 2005, the Trademark Office eliminated a five- 
year backlog of pending trademark applications.  It is now taking 
one year to register a mark in Egypt.  The Ministry relocated the 
Trademark and Industrial Designs Office to a modern facility in 
December 2005.  The process of registration will be fully 
automated, and these offices have access to the Internet for 
international searches for the first time, as well as other 
communications improvements.   Industrial design applications are 
now being examined, and the offices are developing transparent 
procedures for filing and examination. 
 
¶37.  Infringement of trademarks, textile designs, and industrial 
designs remains a problem, but the GOE has taken steps to improve 
enforcement in this area by training civil inspectors in IPR 
enforcement, issuing improved inspections procedures and taking 
steps to implement measures at its borders to prevent the 
importation of counterfeit and pirated goods.  New regulations 
and procedures to implement TRIPS border measures are also being 
developed. 
 
¶38.  In October 2004, the Ministry of Agriculture established a 
new Plant Variety Registration Office.  However, there still 
exist articles in the Egyptian 2002 IPR law that make it very 
difficult for applicants to meet the requirements to register for 
protection of their new, distinct, uniform and stable plant 
varieties.  As of December 2005, no new plant varieties have been 
registered by the office.  The Ministry of Agriculture has formed 
a committee to resolve the problems associated with granting 
plant variety protection in Egypt, but no action has yet been 
taken.  U.S. companies are still advised not to export new 
breeding material or new plant varieties to Egypt until the 
issues are addressed.  Egypt is working on reforming the 
administration of its IPR laws, including plant varieties, as 
part of its efforts to join the International Union for the 
Protection of New Varieties of Plants. 
 
¶39.  Piracy adversely impacts most of the copyright industries in 
Egypt, including motion pictures (in video cassette format), 
sound recordings, books and other printed matter, and computer 
software.  Improvements have been seen in regard to computer 
software protection, and the GOE took steps to ensure the 
authorized use of legitimate business software by civilian 
government departments and in schools.  Major U.S. software and 
computer companies operating in Egypt report a piracy rate in 
business software under 50 percent and improved enforcement in 
2004 and 2005.  Unfortunately, there continues to be a problem 
with false licensing, where a local distributor presents 
documents purporting to authorize the distribution of the works, 
but the documents are supplied by a party that lacks the 
authority to grant the authorization.  Even when the Ministry of 
Culture is convinced that the documents are fraudulent, the 
distributor is permitted to rely upon Ministry of Culture 
approval and to distribute pirated software, music, and films. 
This practice undermines copyright protection in Egypt.  The 
Egyptian government took steps to revoke such approvals for well- 
known pirates and the lack of further action against false 
licensing is reported to be due to the government's inadequate 
human and physical resources in this area. 
 
¶40.  IPRA, a USAID technical assistance program, is working with 
several Egyptian Ministries to strengthen IPR enforcement and 
increase public awareness.  Reports indicate an increase in 
police, Ministry of Culture and Ministry of Supply and Internal 
Trade involvement in IPR protection in 2004 and 2005.  The USAID 
program is also working with the Ministry of Justice on IPR 
enforcement issues, including on efforts to increase the legal 
awareness of judges on IPR issues and to build institutional 
capacity to handle infringement cases.  In 2005, approximately 
450 judges received local training in intellectual property 
rights enforcement through the IPRA project, and Egyptian judges 
also participated in IPR enforcement training programs in the 
United States.  In addition, 150 civil inspectors have been 
trained in IPR enforcement procedures. 
 
----------------- 
SERVICES BARRIERS 
----------------- 
 
¶41.  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.  In late June 2005, Egypt revised its services 
offer and included a number of new sectors: computer, courier, 
air transport services, some construction sub-sectors (building 
and finishing works), and some insurance sub-sectors. 
 
¶42.  Egypt has restrictions for most service sectors in which it 
has made GATS commitments.  These restrictions place a 49-percent 
limit on foreign equity in construction and transport services. 
In the computer sector, larger contributions of foreign equity 
may be permitted, such as when the Ministry of Communication and 
Information Technology determines that such services are an 
integral part of a larger business model and will add value to 
the country.  With courier services, some cases require special 
authorization from the Egyptian National Postal Organization 
(ENPO).  Egypt restricts the employment of non-nationals to 10 
percent of the personnel employed by a company.  Limitations on 
foreign management were also placed in computer-related services 
(60 percent of top-level management should be Egyptian after 
three years of the start up date of the venture).   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. 
 
¶43.  In 1998, the GOE 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  The Ministry of Investment 
announced in September 2005, that Egypt has commissioned an 
international consortium to restructure its four state-owned 
insurance companies, opening the way for their privatization. 
The ministry has selected the Paris-based BNP-Paribas, Egypt's 
Commercial International Bank (CIB), and the New York-based 
insurance consulting firm Milliman to do the job.  Once the 
restructuring is complete, a privatization plan for at least one 
of the companies will be devised; an actual privatization is not 
expected before the second half of 2006. 
 
¶44.  There are 61 banks in Egypt, 22 of which are joint ventures 
with foreign participation.  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 in the next five years 
to reduce the number of banks in Egypt to 21.  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 to LE 500 
million mandating that banks unable to meet this requirement 
either merge with other banks or exit the market.  The deadline 
of June 2005 for banks to meet the capital step-up was finally 
upheld after several postponements. Four banks failed to achieve 
the new threshold and are 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.  The GOE has also been proceeding with plans 
to divest its shares in joint venture banks. To date, six joint 
venture banks have been divested of public shares. 
 
¶45.  Also 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.  Progress on privatization has 
been slow.  In 2004, the government appointed new, western- 
trained senior management teams for the four banks.  Government 
plans to privatize one public bank (the Bank of Alexandria) were 
announced following the appointment of a new Cabinet in July 
¶2004.  This privatization was expected to be completed by the end 
of 2005, but a revised forecast now puts the deal in the first 
quarter of 2006.  The downsizing and privatization of Egypt's 
banking sector should strengthen it and improve implementation of 
market-based financial operations. 
 
¶46.  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. 
 
¶47.  Telecommunications services have expanded rapidly in the 
past four years as the sector has been liberalized and opened to 
international competition.  The impetus for the liberalization 
came from Egypt's accession in June 2002 to the WTO Basic 
Telecommunications Agreement and to the WTO Information 
Technology Agreement in April 2003.  These agreements required 
the liberalization of telecommunication services, full autonomy 
of the National Telecom Regulatory Authority by January 2006, and 
the phasing out of tariffs on all information technology imports 
from WTO members.  In February 2003, Egypt's parliament approved 
a new telecommunications law that established the framework for 
the government to meet these commitments, including the 
termination of Telecom Egypt's  monopoly of domestic and 
international telephone service by January 2006. 
 
¶48.  Egypt has made significant progress in meeting its WTO 
telecommunications-related commitments.  The GOE began 
dismantling its state-owned Telecom Egypt monopoly in December 
2005 by privatizing 20 percent of its assets.  International 
firms actively participate in Internet and cellular services, and 
are eligible to bid on licenses for new telecommunications 
services and 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, although no agreements have yet 
been signed.  More progress, however, is needed in establishing 
full autonomy for the National Telecommunication Regulatory 
Authority. 
 
¶49.  In the cellular service market, which currently consists of 
two private GSM operators, the government plans to allow more 
competition by issuing a the third license through public tender 
in 2006.  The license will stipulate 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. 
¶50.  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, ship repair, 
and, increasingly, container handling.  The new Ain Sukhna port 
is the first privately owned and operated Egyptian port and East 
Port Said port, which was inaugurated in October 2004, is the 
second.  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 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.  The first, Marsa 
Alam, situated on the Red Sea, opened at the end of 2001.  The 
second, Borg Al-Arab Airport, near Alexandria, began operation in 
early 2005. The GOE plans to increase the number of airports in 
the country from the current 18 to 25 over the next decade. 
 
¶51.  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.   The GOE 
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. 
 
------------------- 
INVESTMENT BARRIERS 
------------------- 
 
¶52.  Under the 1992 U.S.-Egypt Bilateral Investment Treaty (BIT), 
Egypt committed to maintaining the critical elements of an open 
investment regime, including national and Most-Favored-Nation 
(MFN) treatment of investment (with exceptions specified in the 
treaty), the right to make financial transfers freely and 
promptly, and international law standards for expropriation and 
compensation.  The BIT also establishes formal procedures to 
enforce the treaty, including international arbitration. 
 
¶53.  In 1999, Egypt and the U.S. signed a Trade and Investment 
Framework Agreement (TIFA) that established a TIFA Council 
designed to facilitate the discussion of bilateral trade and 
investment issues.  The Council met most recently in November 
2005 to review the findings of 15 working groups that are 
examining technical issues related every sector of the economy. 
The results of the TIFA process will be used to strengthen 
bilateral trade and investment relations, with the goal of 
establishing a solid foundation for possible Free Trade Agreement 
negotiations. 
 
¶54.  In June 2005, a new income tax law was passed by parliament. 
The law reduced and simplified tax rates on corporate profits and 
personal income.  The corporate tax rate was reduced from 42 
percent to 20 percent (but maintained at 40.55 percent for oil 
companies).  The new legislation also eliminated all previous 
exemptions and tax holidays.  The law included provisions to 
expand the tax base, including incentives for people and 
companies working in the informal sector to legalize their 
status.  The Investment Incentives Law No.8/1997 was extensively 
amended in June 2005, in order to conform with the new income tax 
law.  The system of preferences and incentives that had been 
accorded to new investors in priority sectors, such as 
agriculture, housing, transportation, petroleum, and computer 
software, was eliminated.  The amendments, however, allow for 
limited exceptions to be made for multinational firms or other 
large investors,  subject to approval by the Prime Minister. 
Investment incentives granted to new investors before the law was 
amended continue under a 'grandfather' clause. 
 
¶55.  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. 
 
------------------------- 
ANTICOMPETITIVE PRACTICES 
------------------------- 
 
¶56.  In January 2005, the Egyptian parliament approved an 
antitrust bill, which sets a limit of 25 percent on market share 
above which a respective company could be subject to an antitrust 
investigation.  Penalties on companies found to have engaged in 
monopolistic practices range from LE13,000 to 10 million.  The 
law will be implemented by a new quasi-governmental body funded 
by direct government appropriations and/or donations from 
professional or academic bodies.  However, the law will not be 
applied to utilities and infrastructure projects, such as water 
supply, sewage, electricity, telecommunications, transportation 
and natural gas.  The executive regulations of the law were 
issued in August 2005. 
 
------------------- 
ELECTRONIC COMMERCE 
------------------- 
 
¶57.  Egypt issued the electronic signature Law 15 of 2004 which 
regulates authorization of electronic signatures and establishes 
the information technology industry development authority.  Egypt 
is deferring a broader e-commerce law that will address such 
issues as domain names, customs and duties, and creation of a 
certificate authority to verify e-signatures.  The development of 
e-commerce in Egypt has been impeded by concern about the lack of 
security on computer networks, the relatively high prices charged 
by Internet Service Providers, and the limited number of Internet 
users in the country. 
 
-------------- 
OTHER BARRIERS 
-------------- 
 
Pharmaceutical Price Controls 
----------------------------- 
 
¶58.  The Government controls prices in the pharmaceutical sector 
and does not have a transparent mechanism for pharmaceutical 
pricing.  The Ministry of Health reviews prices of various 
pharmaceutical products and negotiates with companies to adjust 
prices of pharmaceuticals based on nontransparent criteria.  The 
Ministry has not allowed complete adjustment of pharmaceuticals 
prices to compensate for general inflation and depreciation of 
the Egyptian pound since 2000.  For example, although the 
Egyptian pound has fallen 80 percent in value against the U.S. 
dollar since June 2000, the government has granted price 
increases for only some pharmaceutical products.  Because both 
domestic and foreign pharmaceutical companies rely heavily on 
imported inputs, profitability has dropped sharply and some 
companies claim to be operating at a loss.  In September 2004 the 
government cut customs duties on most imports of pharmaceutical 
inputs and products from 10 percent to 2 percent.  The government 
claims this step will allow local pharmaceutical companies to 
compensate for some of their losses from the devaluation.  In 
November 2004, the Ministry of Health lifted restrictions on 
exporting pharmaceuticals to encourage pharmaceutical investment 
and exports, and announced its intention to create a fund to 
stabilize prices of local pharmaceutical products.  Some reports 
indicate the fund will mainly support local companies' research 
and development efforts.  Further details about the fund's 
operations are not available.  During 2005, the government 
approved price increases on select foreign and domestic 
pharmaceutical products. 
 
Export Restrictions 
------------------- 
 
¶59.  In August 2004 the Ministry of Agriculture removed 
restrictions on exporting cotton.  The Minister of Foreign Trade 
and Industry then announced that all types of cotton will be 
available for exporting in the 2004/2005 season, and that the 
government will not interfere in cotton pricing.  However, the 
U.S. Government continues to have concerns about Egypt's 
Alexandria Cotton Exporters' Association (ALCOTEXA), which 
controls all cotton export pricing and policies.  The USG raised 
its concerns at the WTO's Working Party on STEs in November 2003 
and awaits a response from the Egyptian government. 
 
JONES