VZCZCXYZ0001
RR RUEHWEB

DE RUEHEG #1351 1811300
ZNR UUUUU ZZH
R 291300Z JUN 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 9691
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0417

UNCLAS CAIRO 001351 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA 
USAID FOR ANE/MEA MCCLOUD AND RILEY 
TREASURY FOR MATHIASON AND DENNIS 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958:  N/A 
TAGS: ECON EINV EFIN EG
SUBJECT:  PARLIAMENT PASSES WEAKENED AMENDMENTS TO THE COMPETITION 
LAW 
 
Sensitive but Unclassified.  Not for Internet distribution. 
 
REF:  Cairo 396 
 
¶1.  (U) The People's Assembly recently passed a modified version of 
amendments to the competition law proposed by the Egyptian 
Competition Authority (ECA) to make the law more effective.  ECA 
proposed an obligatory fine of 10% of annual profits for companies 
found guilty of monopolistic practices.  Press reports claim that 
prominent NDP MP Ahmed Ezz was behind the PA's decision to cap the 
fine at LE 300,000 million ($56 million) and leave imposition to the 
discretion of the courts.  Ezz is one of Egypt's wealthiest 
individuals and the owner of Ezz Steel, Egypt's largest steel 
producer and the subject, along with several other steelmakers, of 
an ECA investigation into alleged cartel activity.  Ezz is also 
reportedly responsible for removing from the final version of the 
amendments a "leniency" clause proposed by ECA.  Leniency clauses 
are standard in many countries' anti-monopoly laws and the ECA 
proposal would have allowed a 50% reduction in the fine imposed on a 
company if the company admitted guilt and cooperated with ECA in 
investigating cartel activity. 
 
¶2.  (SBU) Press reports immediately began circulating that Minister 
of Trade and Industry Rachid had resigned in protest over the PA's 
watering down of ECA's proposed amendments.  Rachid is widely seen 
as locked in a battle with Ezz over the former's efforts to improve 
transparency and enforcement of Egypt's commercial law, and separate 
the often intertwined interests of government officials and the 
private sector.  Rachid's office quickly denied rumors of his 
resignation.  Mona Yassin, Head of the ECA, told us that she and 
Rachid agree that passage of the amendments, even with the PA's 
modifications, is a partial victory.  When the competition law 
passed in 2005, the maximum fine was LE 10 million ($1.8 million), 
the equivalent of one day's profits for some companies.  The new 
maximum fine of LE 300,000, while less than ECA had hoped for, would 
still strengthen the deterrent effect of the law. 
 
¶3.  (SBU) Yassin saw Ezz's efforts to cap the maximum fine as 
evidence that steelmakers are concerned about ECA's investigation of 
the steel industry.  After the public prosecutor decided to pursue a 
case against cement companies based on ECA's investigation of the 
cement industry (reftel), steelmakers began to worry the ECA 
investigation would turn up similar findings of monopolistic 
activity in the steel sector.  ECA is still conducting its 
investigation of the steel industry, and a finding is expected in 
August.  Yassin was vague about the reasons for delays in producing 
the results of the steel investigation, which were expected shortly 
after the cement investigation findings in late 2007. 
 
¶4.  (U) Yassin said she did not believe steel prices would be 
affected by a possible ECA finding of monopolistic practices in the 
steel sector.  Steel prices increased 60-70% in the first half of 
2008 and are currently in the range of LE 5,990 ($1,130) to LE 6,995 
($1,319)/ton.  The real driving force behind rising prices is high 
demand due to the construction boom fueled by Gulf oil money.  To 
lower prices, ECA recommended that the Ministry of Trade and 
Industry (MOTI) issue new licenses to steelmakers looking to enter 
Egypt's market, as a means of increasing the sector's capacity to 
meet high demand.  So far, MOTI has not taken action on this 
recommendation, according to Yassin.  She predicted prices would 
likely continue to rise over the next few months, though not as 
quickly as in the last six months. 
 
¶5.  (SBU) Comment:  The weakening of ECA's proposed amendments to 
the competition law highlights the continued vulnerability of 
Egypt's government institutions and legal system to wealthy, 
powerful interests with strong connections to the regime.  It also 
highlights how, as the government encourages private sector-driven 
growth, it must grapple with its role as a regulator charged with 
protecting consumers.  Egypt's market economy is still fragile and 
consumer protection agencies like ECA are still poorly understood 
and easily abused.  Absent strong disclosure or divestiture 
requirements for government officials, the wealthy class will 
continue to have ample opportunity to ensure that public policy 
benefits them.  Numerous contacts have told us that Egyptians are 
acutely aware of steel and cement prices, as much of the residential 
construction in Egypt is done by individuals or families rather than 
construction firms.  Ezz appeared on a television talk show shortly 
after the parliamentary action, claiming that he was not the driving 
force behind the weakening of the amendments.  The host concluded 
with the expression "you can fool some of the people some of the 
time, but you can't..." 
SCOBEY