Inadequate remedies

A new government initiative that provides preferential treatment to a selected group of textile and garments exporters has fallen short of addressing the graver problems faced by the industry. Mona El-Fiqi reports
Intex 2001, an exhibition organized by the EU-funded Private Sector Development Programme, provided an opportunity for meeting between representatives of European companies and Egyptian textiles manufacturers last week. The exhibit was aimed at generating exports through long-term relations between manufacturers and prospective buyers
Being on the government's most favoured list is not necessarily a blessing for many of the 30 textile and garments exporters included on a "white list" announced last month.
As part of a government policy to eliminate impediments to exporting, Finance Minister Medhat Hassanein has issued a decree exempting certain exporters from having to provide guarantees against the value of duties on imported raw materials used in their manufacturing processes. Instead of having to furnish a bank credit letter or put their assets up as collateral, the companies' sole guarantee is now their good name in the market. However, if they fail to prove they have re-exported the inputs, they face not only the usual bank procedures, but criminal charges as well.
"I am not ready to find myself in prison," said one exporter, who requested anonymity. "Although my name is included in the list, I will not be using this exemption."
In order to meet a targeted total annual export revenue figure of $10 billion by 2002, the government is turning to the textiles sector, regarded as one with considerable exporting potential. Many of the inputs used by this sector have to be imported and exporters have constantly demanded a streamlining of government procedures involved in importing and re-exporting these inputs.
Since the 1990s, when exporters began relying on imported cotton after the rise in local cotton prices, they have increasingly made use of an article in the current customs law that instated a "temporary admittance" system for raw material imports. However, exporters are still required to provide the government with guarantees the imported goods will be re-exported and not used in local market production.
Although the listed exporters are apprehensive of the decree's possible repercussions, those who are not object to being excluded. Minister of Economy and External Trade Youssef Boutros Ghali has announced that the exporters chosen are the ones who have never been involved in smuggling operations and have never had any problems with the customs authority -- a situation described by exporters as "impossible".
One disgruntled exporter wonders, "How can a company not have problems with the customs authority when we are constantly disputing the value of our imports with them."
While the 30 exporters will be undergoing a review of their position every six months, new exporters who have proven themselves worthy could also be added to the list eventually.
Nevertheless, the move by the government to facilitate exporting procedures is, according to exporters, insufficient.
Mohamed Qassem, chairman of the Egyptian Garment Exporters Association (EGEA) said the customs authority should streamline procedures through which a customs committee examines exported goods to ensure that the raw materials have, in fact, been used.
Another problem, according to Qassem, is the complex customs procedures that leave exporters feeling lost.
"The customs authority should provide a guide which includes all procedures related to the temporary admittance system," he said.
Textile exports bring in a sizeable sum of foreign currency revenues estimated at $848 million in 2000, according to Ministry of Economy figures. Still, due to a number of other problems it faces, the sector has huge unrealised potential. Topping these problems is the 30 per cent customs duties on raw cotton imports imposed by the government in the early 1990s to protect the local cotton industry. Manufacturers say Egyptian textiles products are less able to compete in the international market due to these inflated duties.
For this and other reasons, textile and garments exports to the United States -- considered Egypt's main market for these goods -- have suffered a setback in the year 2000, according to EGEA figures.
These commodities, which, in 1998, accounted for 45 per cent of total Egyptian exports to the US, fell by 15 per cent in 2000. EGEA general manager, Ahmos Sobhi, expects the situation to deteriorate in the coming years.
According to Sobhi, the signing of the Qualifying Industrial Zones (QUIZ) agreements by the US and a number of Middle Eastern countries, such as Jordan, has given those countries privileges, such as export exemptions from customs duties and increased export quotas. Having not signed such agreements due to political considerations (Israel is a signatory as well), Egypt's US textile orders were directed to countries enjoying the QUIZ privileges.
Furthermore, the red tape involved in customs procedures represents a hurdle for exporters struggling to carve themselves a niche in international markets, Sobhi said. One example he mentioned was the fact that imported raw materials take at least 20 days to clear customs and reach the manufacturer, who might then be unable to meet international order deadlines.
An additional complaint by exporters is that they are charged very high prices for utilities, such as electricity and water, which increases production costs, rendering their product prices less competitive.
The Ministry of Economy last month released a report setting forth a new strategy to boost textiles exports, perhaps in acknowledgement of the gravity of the problems the industry faces. The report, entitled "Egyptian Export Development Strategy 2001," proposes a five-year plan that focuses on advancing textile and garments exports, aiming to increase their value to $1.9 billion in 2003.
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