As the first Egyptian goods exported to the US under the QIZ protocol arrive, maximising the benefits of this controversial agreement has become a priority for both the government and the private sector. Mona El Fiqi reports For years only a hypothetical issue for intellectual debate, the Qualified Industrial Zones (QIZ) protocol has become a reality, with the first Egyptian exports unloaded in US ports last week. The government and private sector are now taking further steps to ensure that the application of the agreement brings tangible returns for both local producers and the economy at large. Commenting on the arrival of the Egyptian exports to the US, Sayed El-Bous, adviser to minister of foreign trade and industry, said the ministry is currently preparing a report with full details about the figures of goods as well as a list of companies which already started the implementation of the QIZ protocol. The protocol, permits Egyptian goods produced in the QIZ to enter to US duty-free provided they have 11.7 per cent of Israeli content out of 35 per cent of local content. The free access of the products is not limited by quotas or other barriers. The tariff exemption applies on all Egyptian manufacturers in QIZ areas. The QIZ protocol permits any company located in the areas of Cairo, Alexandria and Port Said to register. Since December 2004, when the QIZ protocol was signed, the government and private companies have been working hand in hand to achieve a rapid increase in Egyptian exports to the US. So far 397 companies have received their licences as participants in the QIZ protocol. "All applications presented to the QIZ unit were approved except those of companies which are not located in the designated zones," said El- Bous. While companies located in the QIZ areas are seeking the benefits of the protocol, the government is considering a plan to compensate the excluded factories. Rasheed Mohamed Rasheed, minister of foreign trade and industry, announced that his ministry has developed a strategy to support exporters who had already been exporting a fraction of their production to the US but do not qualify for QIZ privileges because they are not located in the chosen areas. Rasheed explained that LE100 million will be provided from a specific fund to enable these factories to remain competitive with QIZ-listed factories. This fund, according to Rasheed, will be gradually reduced when more areas and factories are added to the QIZ protocol over the medium term. Moreover, the government is looking to improve the technical standards of some companies located in the QIZ areas. The Industrial Modernisation Programme, one of the government's instruments used to develop the industrial sector, will start a scheme to improve small and medium-sized companies' technical potentials to obtain the specifications certificates from international institutions which enable them to benefit from the QIZ protocol. Campaigns to raise exporters' awareness are also underway. The Federation of Egyptian Industries held a seminar last week, attracting hundreds of entrepreneurs asking about their companies' potential to export within the framework of the QIZ. At the beginning of the seminar, El-Bous pointed out that Egyptian negotiators succeeded in winning more flexible terms than those in the Jordanian protocol signed with the US in 1999. "According to the Egyptian protocol, the Israeli content is not revised for every single shipment of exports to the US provided that this factory's cumulative exports every quarter satisfy the agreed upon ratio," El-Bous added. The agreement may have saved Egypt's textiles and garments industry from losing its share in the US market, which is the largest consumer markets worldwide. It is estimated that the Egyptian textiles industry has assets worth LE1 billion, employs at least a million workers, and contributes 30 per cent of the Egyptian industrial exports. The value of Egyptian textiles exports to the US was estimated at $600 million in 2004, according to Ministry of Foreign Trade and Industry figures. "The agreement will definitely improve this figure. Following the application of the QIZ agreement in Jordan, Jordan's exports value to the US increased from $12 million in 2003 to $1 billion in 2004," El-Bous said. To follow up the implementation of the QIZ, a joint committee has been formed with representatives of the private sector, government officials and Israeli delegates. The committee, which is scheduled to meet every three months to approve the registration of more factories, also has the right to punish violators of the QIZ regulations. When a factory obtains its QIZ annual licence, the joint committee can not cancel it as long as the factory follows the rules. "But if a factory violates the QIZ regulations which simply means that the 11.7 per cent of Israeli content is not fulfilled in the product, it is deprived from the QIZ licence for three months. When violation is repeated the punishment is doubled to six months," El-Bous explained. To export within the framework of the QIZ, exporters must pass through the normal export procedures except for adding Israeli imports documents to get the QIZ approval for shipments. Another factor encouraging exporters to participate in the QIZ scheme is the fact that "an exporter can import his total annual inputs once a year, which enables him to import at wholesale price, provided he keeps the necessary documents," El-Bous pointed out. Galal Abul-Fetouh, chairman of the Customs Authority, said the authority is considering a plan to develop a customs outlet at Al-Ouga in cooperation with the governor of South Sinai to facilitate the movement of the Israeli imports into the QIZ areas. The QIZ protocol should further stimulate the Egyptian economy by encouraging investors from the US and other countries, while it is also regarded as a step towards a free trade agreement between Egypt and the US.
