Lifting Tariffs on EU Cars Imported to Egypt Not Likely to Lower Prices

The final phase of the EU-Egypt Association Agreement that promises the total exemption of customs on European cars within six months had led to high hopes that Egyptian consumers could buy European cars at cheaper prices.

It seems, however, that such hopes will not come true. Manager of Brilliance Bavarian Auto, a Cairo car-dealer, Khaled Saad believes that “the elimination of import tariffs on European vehicles will not mean cheaper cars. It will go largely unnoticed because of the floatation of the pound and the subsequent appreciation in the price of the dollar and the euro.”

The lifting of the current customs duties, which stand at four per cent, will not make a big difference in the prices consumers pay for European vehicles, he said.

The elimination of import tariffs is not restricted to cars manufactured in Europe, but also includes any vehicle imported from Europe even if it was not manufactured there.

Negotiations between the European Union and Egypt led to the signing of the EU-Egypt Association Agreement in June 2000, which promises a gradual reduction of customs rates on European car imports to Egypt from 2004 to 2019 to reach zero by the end of a 15-year transitional period.

The agreement grants the complete elimination of customs duties on Egyptian industrial imports to Europe starting in 2004.

In 2017, car sales decreased dramatically following the depreciation in the value of the pound that led to the doubling of the prices of most imported cars.

Around 99,000 vehicles were sold in Egypt in 2017 compared to around 142,000 in 2016.

Rimon Makar, the owner of a company that imports vehicles from Europe, agreed that customers should not hold their breath. “Dealer profit and the exchange rate in the local market will mean the customs reduction will not be noticed by consumers,” he said.

Raafat Masrouga, an expert on the vehicles industry and honorary president of the Automotive Marketing Information Council (AMIC), believes “the market will witness reductions in the prices of European cars with the total elimination of customs early next year.”

He predicted that the prices of vehicles with engines less than 1,600 cc will only be minimally affected, however. Cars with engines of more than 1,600 cc, customs on which have now reached 13.5 per cent, could witness a four to five per cent drop in prices, he said.

Egyptian vehicle sales improved in 2018, when an increase of 32.3 per cent was recorded in the first quarter with about 35,000 vehicles sold. This upward kick in sales was achieved thanks to a rise in the sales of trucks and buses.

“People could have felt a relative reduction in the prices of European cars if it had not been for the vehicles-manufacturing strategy announced [last year] by the Ministry of Industry,” Alaa Sabaa, a member of the Automotive Division at the Federation of Chambers of Commerce and a dealer in Japanese cars, said.

The ministry had drawn up the strategy to decrease imports, he said. “It will minimise the chances of seeing a reduction in the prices of European cars. For all we know, prices may even increase,” he added.

The strategy, known as the Automotive Directive, has been widely rejected by manufacturers. It remains under discussion and has yet to be issued. It exempts local products from the new industrial development tax, which has yet to be applied, on the adoption of at least one of three conditions. The first is a strategy to deepen local manufacturing that requires increasing local components from 45 per cent to 60 per cent in cars and vehicles that carry up to 16 people within eight years and increasing local components in light-duty trucks from 45 to 70 per cent.

The second is a strategy to increase production under which products will be exempt from the tax if the factories in which they are made can increase production.

The directive proposes encouraging factories to produce a minimum of 60,000 vehicles of less than 1,600 cc annually, along with 8,000 vehicles of more than 1,600 cc, and 50,000 semi-trailer trucks.

The third condition is an export-boosting strategy that exempts vehicles from the tax if a plant exports car components or fully manufactured cars. Manufacturers may also be exempted if they can re-export 25 per cent of customs-free vehicles imported from the EU, Sabaa explained.

“This condition eliminates any possibility that cars will see a reduction in prices,” he added