Mona El-Fiqi discovers that recent tariff cuts on several imported President Hosni Mubarak issued a decree on 5 February to reduce custom duties by 25 per cent, causing average customs on imports to drop from nine to 6.9 per cent. The decree reduced customs on 1,114 items, including raw materials, capital goods, food products, textiles and some medicines. Overall, this is considered a positive move to stimulate trade, since 90 per cent of listed items now enjoy tariffs ranging between zero to 15 per cent. According to the decree, which went into effect on 6 February, some imported food products such as meat, fish, beans and cooking oil are among 176 items which enjoy zero tariffs, while customs on household goods decreased from/by 40 to 30 per cent. Moreover, tariffs on cloths were cut from 22 to 10 per cent while duties on ready-made garments are down from 40 to 30 per cent. Although tariff cuts will result in an estimated loss of LE1.4 billion in revenues, officials believe this will be compensated by general improvement in economic activities and boosted imports. Experts agree that the move will help increase investments, particularly in the food industry sector which currently enjoys many privileges and tariff reductions on raw materials. The Chairman of the Customs Authority Galal Abul-Futouh stated that the ultimate aim of the tariff changes is to fight price increases, particularly for some food commodities such as wheat and sugar which witnessed price hikes on the international market. Abul-Futouh believes the tariff cuts will have a tangible and positive impact on prices, even if it means stabilising at the current average. The decree also aims at balancing out custom duties on raw materials and components, semi-produced goods and final products, he added. Despite government assurances that the new decree favours the consumer, the public begs to differ. Ahmed Ali Saleh, who works in the private sector, said he did not believe that prices will go down. "The difference between the actual cost and the sale price will be pocketed by retailers and importers. Consumers will not benefit," believes Saleh. Raafat Abul-Dahab, a member of the National Society for Consumer Protection, agrees that the amendments do not benefit consumers, arguing that they were only done to meet Egypt's commitments to the World Trade Organisation (WTO). Abul-Dahab continued that the tariff cuts will not reduce prices, citing that when the government slashed customs on 8,000 items in 2004 prices continued to rise nonetheless. "So we do not expect the new reductions will be felt in the final prices," asserted Abul-Dahab. He explained that producers maintain the same prices or even raise them under the pretext that production costs are high. Importers and producers are not obliged to decrease prices, particularly since the market is left to the dynamics of supply and demand. "In addition, some producers, retailers and importers monopolise the market to keep prices high," added Abul-Dahab. His solution is for the government to fix the prices of essential goods. Abul-Futouh asserted that the decree was thoroughly studied and discussed with the federations of industries and commerce, and that the tariff system is sometimes protective of the local industry. For example, while the recent decree did not include a tariff cut on poultry imports, it included reduced customs on poultry provender to support and protect the local industry. On the other hand, tariffs on meat and livestock imports were slashed since local production does not fulfil consumption needs causing prices to continuously soar. Hence, the decree will help reduce the price of meat on the local market by facilitating the entrance of imported meat at reasonable prices. But Abul-Dahab counters that the decree benefits retailers not the local industry as claimed by the government. He warned that national industry will be negatively affected because it is incapable of competing with imports. Even before the decree, some imported durable goods were cheaper than Egyptian-made, such as television sets made in Korea. The government's move to reduce overall tariffs started in 2004 was followed by another customs reduction decree early in 2005. Minister of Finance Youssef Boutros Ghali said that this month's amendments aim to remove some distortions caused by the September 2004 decree which wholly favoured producers. Ghali added that the new decree simplifies the customs system, aligning it with international specifications to facilitate trade. It would also support Egyptian exports and help raise their competitiveness, he asserted. For Minister of Trade and Industry Rachid Mohamed Rachid, the decree is part of a comprehensive economic reform programme which aims at upgrading the productive capacities and competitiveness of the local industry. Rachid noted that the majority of the reductions are for intermediate items and components which will boost productivity in Egyptian factories. Some producers, however, are not pleased and anticipate the decree to negatively impact their businesses. Those in the textile industry, for example, accuse the government of cutting tariffs on textile products beyond what is required of Egypt by the WTO. This will increase the burden on their industry which already faces many serious problems. Moreover, they have submitted a memo to Rachid requesting that the government apply strict regulations against smuggling textile products into the country, in order to allow local industry to compete with legally imported goods. Rachid had previously announced that the government will provide LE150 million to support the textile and ready-made garments industry, and make it competitive with imported products. According to Ihab El-Messeiri, chairman of the Customs Committee at the Federation of Egyptian Industries, the government went the right way by cutting tariffs. "The local industry doesn't need any more protection to help it upgrade itself and compete on the international market," according to El-Messeiri, who is also an owner of a ready- made garments factory. He asserted that tariff cuts are not a problem for textile producers, but that smuggling is a more serious issue that should be eliminated to support local industry.
