MERCOSUR THREAT­ENS FEED-IN IN­DUS­TRIES, VE­HI­CLES.. IN­DUS­TRY MIN­IS­TER RULES OUT POS­SI­BIL­ITY

MERCOSUR AGREE­MENT WAS AC­TI­VATED SINCE THE AP­PROVAL OF AR­GENTINA IN MAY, THE GOVERN­MENT HOLDS AWARNESS CAM­PAIGNS FOR IN­VESTORS AND MAN­U­FAC­TUR­ERS

The Daily News Egypt - - Front Page - By Ahmed Amer

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?

SamirAl­lam, 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).

Hus­sein Moustafa

I DO NOT EX­PECT THE CASE OF STOP­PING MERCEDES BEN MAN­U­FAC­TUR­ING IN EGYPT TO BE RE­PEATED MOUSTAFA

Amr Nas­sar

BUSES AND TRUC S IN­DUS­TRY IN DAN­GER, IM­PACT WILL BE VI­O­LENT NAS­SAR

Samir Al­lam

LIBERALI ING TRADE IN AB­SENCE OF GOVERN­MENT STRAT­EGY WILL ELIM­I­NATE AD­VANCE­MENT OP­POR­TU­NI­TIES

Raafat Mas­rouga

THE AGREE­MENTS WILL FORCE GLOBAL COM­PA­NIES TO EX­CLUDE US FROM MAN­U­FAC­TUR­ING MAS­ROUGA

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