The Argentine parliament has ratified the free trade agreement between Egypt and MERCOSUR in May, which contributes to the bringing the agreement into implementation and improving trade between Egypt and MERCOSUR countries, which are Brazil, Argentina, Uruguay, and Paraguay. The agreement creates great controversy amongst manufacturers of cars and feed-in industries in Egypt.
From the point of view of some, the agreement may pose a great threat on the industry of vehicles and their local feed-in industries.
With the removal of custom barriers and the absence of a government strategy for that industry, the agreement will eliminate any hopes to advance the vehicles industry.
Samir Allam, the deputy head of the Transportation Division at the Federation of Egyptian Industries (FEI), said that with the signing of the MERCOSUR agreement and its implementation, as well as removing the custom barriers between Egypt and the MERCOSUR countries, will negatively affect the manufacturing of cars in Egypt, especially that Brazil is one of the giant companies globally in terms of car manufacturing, where it produces about three million cars annually, besides the volume of the feed-in industries.
Allam told Al Borsa that in the absence of a strategy regulating the car industry in Egypt and the state’s trend towards liberalizing its foreign trade, this may lead to eliminating the available opportunities and opening doors for importing spare parts with less cost and global quality, leaving the feed-in industries trapped.
Allam expressed his fear from the possible repetition of the case of Mercedes Benz stopping the manufacturing of its cars in Egypt after the gradual removal of custom barriers between Egypt the European Union (EU) countries.
Global companies were inclined to manufacturing in Egypt in order to break the customs barrier which greatly increases the prices of cars, however, with the liberalization of the trade with MERCOSUR countries, some investors will not inject their investments into the Egyptian market after the absence of the economic feasibility for manufacturing.
“These agreements lose their impact if there was a real industry in Egypt. The agreement was utilized to our favour with our car production in Egypt reaching numbers that qualify us for exporting with the availability of quality and prices as well as international standards. Egypt can benefit from the agreements that remove any custom barriers from and to Egypt,” said Hussein Moustafa, the executive director of the Egyptian Automobile Manufacturers Association.
He added that the Egyptian partnership agreement has not affected the sales of European cars in Egypt and that there is still an increase in the prices of European models with the elimination of the custom tariffs. This indicates that liberalizing foreign trade will not directly affect the local product. Locally manufactured cars still have a price advantage, where the increase of inflation rates does not make us feel any price differences when comparing between European and non-European importers. The price increase rates are close.
Moustafa believed that the MERCOSUR agreement will not have a strong short-term impact and it is difficult to see the invasion of the cars manufactured in Brazil on the Egyptian market.
Raafat Masrouga, the honorary chairperson of the Automobile Market Information Council, said that it is clear that the free trade agreements have a negative impact on the automobile industry in Egypt. “We do not forget Egypt’s persistence to exempt the automobile sector from the application of the free trade agreement with Europe for five years, them implementing it regularly for over 10 years ending in 2019,” he added.
Masrouga said that the agreements of free trade will force global car manufacturers to exclude Egypt when it comes to assembling. The government must think of an exit out of this situation.
Amr Nassar, the executive director of MCV Group, said that the implementation of the free trade agreement between Egypt and MERCOSUR countries will violently impact the vehicles industry in Egypt, especially buses and trucks manufacturing in Egypt.
He considered buses manufacturing to be the last hope for vehicles manufacturing in Egypt. “With the liberalization of our foreign trade and the absence of the government vision to develop vehicles manufacturing, the hopes of developing this industry will fade,” he said.
Source revealed that the agreement will allow manipulation by importers in the absence of control over pricing where this will open doors for some companies to import cars from countries including Brazil and Argentina without customs, then sell them in the Egyptian market for the prices of imported cars, in addition to customs tariff based on the importing from the country of origin not Brazil. “This manipulation will create a major opportunity for increasing the profit margin and causing manipulators to achieve profits,” the sources said.
Car companies which assemble their cars in Egypt will resort to importing ready parts without intervention then assemble these cars in Egypt; obtaining a percentage of industrial support when these companies have not actually manufactured anything originally. This is the only way Egypt can enter into manufacturing global cars.
As an answer to the question about the impact of the agreement on the sector of buses and trucks, experts said that the agreement will open doors for industrial cheating and those who do not deserve the export support will be receiving it.
Amr Nassar said that the implementation of the free trade agreement between Egypt and MERCOSUR countries will violently impact the manufacturing of buses and trucks in Egypt; something that Egypt is distinguished for. It also famous for exporting a large number of buses to many countries around the world.
He said he considered bus manufacturing the last hope for vehicle manufacturing in Egypt, and with the liberalization of foreign trade and the absence of a government strategy, the hopes to develop this industry will be eliminated.
Nassar explained that Brazil is a strong competitor to Egypt in the manufacturing of buses and trucks, and if Brazil exported its buses to Egypt without customs, this will be a major issue.
As for Egypt, it will not be able to do the same because Brazil has internal protection that protects the local industry before any foreign product with the availability of financing for the Brazilian industry. This means that Egypt will not be exporting, and as a result, Brazil will benefit more from the agreement.
As for passenger cars manufacturing, the agreement will not have an effect on the decisions of the mother companies manufacturing passenger cars. In case mother companies decided to export its cars to Egypt from MERCOSUR companies, the Egyptian government will not have options to protect the industry in the absence of a strategy because changing the country of manufacturing for the mother company is considered competition for itself. This will harm neither the company nor its agent in Egypt.
In the case of activating this deal, this will pose danger on the manufacturing of buses and trucks and facilitate fraud, causing anyone to import buses from Brazil and assemble them with “Made in Egypt” written on them.
Afterwards, these cars can be exported and be treated as Egyptian products. That so-called manufacturing would even be able to obtain the export support provided by the state.
The Minister of Trade and Industry, Tarek Kabil, announced early in June that the parliament of Argentina had ratified the free trade agreement between Egypt and MERCOSUR countries which was signed in 2010, completing the approvals of the member countries of MERCOSUR.
According to the Ministry’s statement, Kabikl said that the implementation of the agreement will increase the trade and investment exchange between Egypt and MERCOSUR countries, which amounted to $3bn last year.
Egypt ratified the agreement in 2013 with the aim of opening new markets for Egyptian products in Latin Amercia as well as increasing exports, according to the data of the Ministry of Trade and Industry.
The MERCOSUR was established in 1991 since Asunción agreement was signed with Brazil, Argentina, Uruguay and Paraguay . In 1994, the member countries signed Ouro Preto Protocol which put the financial structure for the MERCOSUR as an actual start on the path of achieving MERCOSUR’s main goal, which is reaching the common market, according to the website of the Ministry of Foreign Affairs.
MERCOSUR is an economic bloc of the common market of South Latin America. Venezuela is not a full member as well as Bolivia and other Latin America countries, where the MERCOSUR includes a population of 250 million, with a GDP of $1tn or nearly 76% of the GDP of Latin America.
Fears from the repetition of Mercedes Benz’s case
Mercedes stopped manufacturing in Egypt after the activation of the Egyptian-European partnership agreement. However, will the stopping be taking place with other companies with the activation of the free trade agreement with MERCOSUR?
Samir Allam, head of the transport division in at the Federation of Egyptian Industries (FEI), expressed his fear from repeating the situation of Mercedes stopping manufacturing in Egypt after the gradual removal of custom barriers between Egypt and EU countries.
Companies are more inclined to manufacture in order to overcome the custom barrier which greatly increases the prices of cars, and with the liberalization of trade with MERCOSUR countries, some investors will overlook injecting investments into the Egyptian market in the absence of economic feasibility for any investors.
May 2015 witnessed stopping the manufacturing of Mercedes Benz in the factories of the Egyptian German Automotive Company (EGA).
Ministry of Industry excludes possibility for industrial fraud in buses manufacturing after signing MERCOSUR agreement: Minister of Trade and Industry
The Ministry of Trade and Industry ruled out the possibility of the MERCOSUR opening doors for industrial fraud amid concerns from vehicle manufacturers especially buses after the implementation of the agreement, with fears from harm done to local products in the absence of the preferential procedures for the Egyptian products.
Tarek Kabil said that he rules out the possibility for opening the door for industrial fraud.
Fears from buses manufacturers increased regarding the ability of any trader to import buses on two or three portions then assemble them and have the sentence “Made in Egypt” written on them with the possibility for exporting them without any economic feasibility achieved for the state.
A government source stressed that the MERCOSUR agreement was activated since the approval of Argentina in May. He added that the ministry is seeking to carry out awareness campaigns for investors and manufacturers of the importance of the agreement as well as explaining the state’s strategy.