Count before you pack

The imminent lifting of the ban on garment imports has raised a ruckus in the local market. Niveen Wahish reports
It is a familiar scene. Every time a deadline comes up for Egypt to meet one of its commitments to the World Trade Organisation (WTO), there is an uproar in the local market. Local manufacturers throw a fit claiming that they will not survive the competition and demand more time to adjust.
This time it is the garment industry that is pleading for time. The deadline for Egypt to lift the 15-year ban on the import of garments was on 1 January 2002.
Although more than a week has passed since that date, Minister of Foreign Trade Youssef Boutros Ghali has said that the ban has not been lifted. Egypt was originally scheduled to lift the ban on garment imports seven years ago, but was granted an exemption.
Even when the ban is lifted, the Egyptian market will not be totally exposed, because the country will be allowed to levy duties on garment imports. According to Mohamed Mamoun, WTO consultant and arbitrator on the WTO dispute settlement panel, Egypt could set its tariffs on garments as high as 52 per cent of their value. With such a tariff schedule, Egypt would be complying with the WTO while being allowed to place what Mamoun believes to be among the highest tariffs on garments in the world.
However, fears that the ban would be lifted at the beginning of the year caused such an uproar among local manufacturers that on 1 January the government instead announced that the ban would remain in place until further notice.
The Ministry of Finance announced a set of new tariffs, which came as a pleasant surprise to local garments manufacturers. The new tariff schedule reduces duties on production inputs so that they are now as low as one per cent -- a long-standing demand by manufacturers -- and included a new "specific tariff" on ready-made garments. The new specific tariff is as high as LE1,400 for a women's two-piece outfit and LE1,000 for a coat. The exaggerated tariffs, which are not related to the value of items, are mainly aimed at discouraging importers from bringing foreign- made clothing into the country. However, even travellers will be closely scrutinised and will be charged the new tariff on items. Each person will only be permitted to bring five items into the country tariff-free.
The new tariff modifications were applauded by domestic manufacturers who hailed them as a means of compensating them for the unavoidable lifting of the ban on garment imports. At a press conference held to announce their support for the government decisions, representatives of the textile industry from the Federation of Industries and the Federation of Chambers of Commerce lauded the move as supportive of local industries.
But the government could not keep everyone happy. While domestic producers were thrilled with the new tariffs, retailers in Port Said were up in arms. Shops shut down for three days to protest the new tariffs. Citizens who visited the city for a day of shopping were stopped at the outskirts of Port Said and asked to pay the new tariff. Shocked to discover the amounts they were required to pay, shoppers returned to Port Said to return their purchases. To reach a compromise and overcome the sudden halt to commerce that hit the city, the government decided that local and foreign visitors to Port Said were entitled to purchase up to five garments duty-free.
Fathy Nematallah, member of the General Syndicate for Textiles and member of parliament, deplored the anger of Port Said traders. He stressed that the purpose of having a free zone in Port Said was to facilitate the setting up of export-oriented industries -- not to stimulate commerce.
The new tariff has not only upset retailers in Port Said, but has called into question the extent to which recent government decisions are compatible with WTO regulations. An expert on international trade law who preferred to remain anonymous condemned the new tariff, saying that it is incompatible with WTO stipulations. "We only have the right to impose regular tariffs," he said.
This chaos among manufacturers and retailers could have been easily avoided if Egypt had requested that the WTO grant it another extension for the ban. To be able to apply a ban on garment imports in the 1990s, Egypt invoked the provisions of the General Agreement on Tariffs and Trade (GATT), which allow developing countries that have a balance of payments deficit to maintain a ban on certain imports. However, in 1994, GATT challenged the applicability of the balance of payments provision to Egypt because Egypt's reserves at that time were substantial enough that it no longer had balance of payments difficulties. Even so, Egypt was able to obtain a seven-year exemption to protect its garment industry.
Today, Egypt is again experiencing difficulties with its balance of payments. According to Mamoun, a country may invoke the balance of payments provisions to impose a ban on imports at any time, providing that the country first informs the WTO of the details of the ban it intends to impose and presents the organisation with a plan for phasing it out. This provision can be invoked not only in the event of a balance of payments problem, but also if there is a risk that national hard currency reserves will be depleted without a ban on imports. "However, [a ban] should not target a specific sector," explained Mamoun.
Just before the new tariffs were announced, domestic manufacturers had been in an uproar claiming that opening the Egyptian market to garment imports would destroy the local industry.
MP Nematallah submitted a request for information to the prime minister to clarify the government's intentions concerning the ban. In addressing parliament, Nematallah said that lifting the ban would lead to the closure of at least 50 per cent of local garment manufacturers. He pointed out that in recent years the garment industry has grown in the private sector, helping to revive the thread and textile industries. Nematallah warned that the local industry will not be able to compete with cheap imports from south-east Asia, China or Pakistan and should it collapse, it would bring down the thread and textile industries with it.
"It will mean total ruin for the whole industry, and thousands would lose their jobs," he said. An estimated 250,000 people work in Egypt's thread, textile and garment industries.
Not even the increase in the value of the dollar will deter imports, Nematallah told Al- Ahram Weekly. "They are so cheap, even with the pound's decline, [imported garments] will be cheaper than Egyptian products," he said.
Regardless of whether local manufacturers' fears are justified, the clothing industry knew that the ban was scheduled to be lifted well in advance of the deadline. "Both the private sector and the Ministry of Industry agreed to these dates and have known about them from the beginning," said Mamoun.
In Mamoun's opinion, local industry's fears are overstated. He believes that a good portion of Egypt's garment producers are capable of withstanding foreign competition. In fact, he pointed out that $800 million-worth of garments is exported annually, primarily to the US and EU markets.
On a similar note, a government source, who preferred to remain anonymous, said that if Egypt does not lift the ban, local producers will never develop and will never export. "Competition will push them to produce better and cheaper products," he said.
Mohamed Qassem, a garments manufacturer and exporter is also of the opinion that a total ban on imports would be harmful to local industry in the long run. "After 50 years of protection, the industry is still incapable of competing," he said.
Mohamed Mamoun also pointed out that even while the ban was in force, huge quantities of garments were smuggled into the country, thereby pitting local manufacturers in competition with foreign garments.
Mamoun said, "Our clothing industry is competitive provided two conditions are met. First, the burdens on this sector have to be reduced. Currently, the local supply of fabric and thread needed by garment manufacturers is of low quality and expensive. To overcome this obstacle they import these inputs, which in turn adds to manufacturers' costs due to the high tariffs charged on these items. The public sector should improve quality and sell at a reasonable price."
Coupled with this, Mamoun stressed said that the eradication of smuggling is now more urgent then ever.
The current uproar in the garment industry is neither the first, nor will it be the last. It appears set to recur as further commitments are made within the framework of new negotiations within the WTO.
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