Legal Issues

Legal aspects of doing business in Egypt

by Steven E. Hendrix*

Egypt's economy has under-gone many changes in recentyears, making it an attractivemarket for U.S. goods and ser-vices. Lately, foodstuffs, in-dustrial machinery, transport andconstruction equipment, capitalequipment and spare parts,health care products, telecom-munications and agriculturalmachinery and services have allbeen in demand in Egypt. There-fore, U.S. exporters have beeneager to learn about the legal sys-tem of that Nile River nation.

* Mr. Steven E. Hendrix, Esquire,a University of Wisconsin LawSchool graduate, is an attorneylicensed to practice law in wiscon-sin, Pennsylvania and the Districtof Columbia. His practice has in-volved international trade financeand government-supported ex-port promotion programs.

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In most cases, Egypt's importsare governmentally regulated andoften subject to customs duty.The procedures for importationare numerous, and advance per-mission from the Egyptianauthorities is also often required.

Egypt's legal system is based onEnglish common law, the FrenchNapoleonic codes and Islamic law.The currency, the Egyptianpound, is tied to the U.S. dollar atthe official rate of 0.70 pounds tothe dollar. This conversion rate isavailable only to the public sector,and the government uses it to im-port essential foodstuffs, insec-ticides and fertilizers. A "Ooatingrate" is available to airlines, ship-ping companies, and a few otherentities. Most transactions, how-ever, use the "free market rate,"which is applicable to imports byboth the public and private sec-tors.

As of January 1, 1989, both theUnited States and Egypt becamesignatories to the United NationsConvention on Contracts for theInternational Sale of Goods. Thisshould greatly assist U.S. ex-porters in their analysis of themany legal implications of doingbusiness in Egypt, as the U.N.Convention contains the terms ex-porters are already accustomed tousing for transactions in otherparts of the world.

Trade Restrictions and Regula-tions

In many ways, U.S. business ex-ecutives should be comfortabledealing with the Egyptian market.Since Egypt is a member of theGeneral Agreements on Tariffsand Trade (GATT), exporters ex-

perience few problems in Egyptconcerning anti-dumping duties,subsidies or countervailing duties.Similarly, government interventionin countertrade is non-existent.Indeed, Egypt has adopted nospecific legislation on the topicand offers no incentives to en-courage countertrade in theprivate sector. With respect topreshipment inspections, nogovernment regulation requires anexporter to have its goods in-spected, although the Egyptianimporter will likely request such aprovision.

The government completelybans a list of over 200 goods frombeing imported into Egypt.Generally, the list includes con-sumer, luxury and other goods al-ready produced in Egypt.However, it is possible to obtainexceptions to this list for productsrelated to the production of cer-tain goods. Goods financed withbilateral or multilateral assistance,components imported by licensedlocal manufacturers, assemblyunits and free zone imports all fitinto this latter category.

Interest payments require priorauthorization from the exchangecontrol authorities. This appliesto normal and penalty interestclauses that may be found inexporters' sales contracts to Egyp-tian purchasers. Only afterauthorization is obtained willgovernment authorities permitpayments to be made abroad. Themaximum rate of interest is alsosubject to government approval.

Duties: Egypt uses the Cus-toms Co-operation CommonNomenclature System to classifyimports for tariff purposes. Mostgoods brought into the country

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are taxed on an ad valorem basis,using the c.iJ. value. A few goodsare taxed ,based on weight. Spe-cial rules apply to capital equip-ment, which receives preferentialtreatment under the InvestmentLaw. Most duties fall in the 10%to 40% range; however, alcoholicbeverages are faced with a 3000%barrier to entry, while basicfoodstuffs enjoy duty free status.It is advisable to check with theMinistry of Finance for an ad-vance ruling regarding the exactduty payable in any given instance.Interestingly, Egypt does notemploy significant non-tariff bar-riers to deter imports, other than

the list of items completelybanned.

Currently, Egypt is a memberof the Arab Common Market.This organization has as its goalthe elimination of tariffs onagricultural, animal and naturalresource commodities within theMarket. Egypt already hasremoved tariffs on most manufac-tured products for Market mem-bers, creating a free-trade area inmany sectors of the economy.

Similarly, Egypt has maintainedcontacts with the European(economic) Community (EC). In1977, the EC and Egypt entered a"cooperative agreement" coveringtrade, financial aid, and technical

and economic cooperation. Thisallows Egypt to trade for hardcurrency and diversify the nationswith whom it transacts business.

Taxes: There are seven maintaxes on imports into Egypt. First,a "statistical tax" applies to allnon-wheat imports. This tax iscalculated to be 2% of the c.iJ.value of the imported goods.Second, a "development tax" of10% of the c.iJ. value is chargedto most imports. Third, the"municipal duty" must be paid atthe rate of 3% of the combinedvalue of the customs duty and the

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development tax, plus any addi-tional excise duties that may beapplicable to the import. Fourth,a "portage duty" is payable basedon the type of good and the weightof the good. Rates generallyrange between 0.20 and 0.40Egyptian pounds per metric ton.Fifth, a "marine tax" is based upon0.25% of the c.iJ. value of anygoods imported through one ofEgypt's ports. Sixth, some itemsconfront an additional 8% cus-

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toms duty. Seventh, a "sup-plementary duty" is added to cer-tain luxury items. This rate rangesbetween 10% and 20%.

Agency Agreements: Entitiesthat are not Egyptian-owned mustuse an Egyptian agent to importgoods. In any case, advanceauthorization and enrollment inan "importers register" are oftenrequired of Egyptian importers.Since 1983, special regulationshave been in effect governingforeign agency and commercialbroker representation in both thepublic and private sectors inEgypt. Under this new legislation,

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LegafISsoes

the agreement between the partiesgoverns the relationship except tothe extent that the agreement con-flicts with existing law. The agree-ment must stipulate (1) theresponsibilities of each partyrespectively, (2) the nature of thework of the agent, (3) the commis-sion, and (4) the form of paymentof the commission including cur-rency of payment.

Interestingly, only Egyptiancitizens, Egyptian legal entities, or

long-term naturalized Egyptiansmay act as representatives offoreign principals. These repre-sentatives must be registered withand approved by the Ministry ofEconomy and Foreign Trade.Several other limitations andrestrictions on agency agreementsalso apply. U.S. exporters wishingto establish an agency relationshipshould seek legal advice beforeagreeing to any such arrangement.

Intellectual Property Protec-tion: Besides agency arrange-ments, licensing agreements canalso be used to enter the Egyptianmarket. Licensing agreements

often cover trademarks, patentsand "know-how." Because Egypthas signed most internationalagreements and conventions onpatent and trademark protection,this method has many benefits.Yet, all licensing agreements in-volving the payment of foreignroyalties must receive approvalfrom the General Organization forIndustrialization (referred to asGOFI). In the past, long delayshave resulted from this approvalprocess. GOFI has approved ar-rangements running five to tenyears, with subsequent automaticrenewals. Royalties approved byGOFI have most often rangedfrom two to five percent of totalsales revenue. GOFI also has ac-cepted once-off lump sum pay-ments as compensation.

Documentation requirements forexports to Egypt

All shipments to Egypt shouldbe accompanied by (a) a commer-cial invoice, (b) a bill of lading (orairway bill), (c) a certificate oforigin, (d) a packing list, (e) aproforma invoice and (f) ap-propriate special certificates. TheEgyptian authorities do not re-quire consular or customs in-VOIces.

(a) The Commercial Invoice:

There is no set format require-ment in Egypt for commercial in-voices. Still, invoices must containall the information normallyprovided, including a completedescription of the goods, the price(including freight, packing andother charges, minus discounts),the net and gross weight of theshipment, and so on. The invoicealso should include a statement ofproduct origin and manufacture,including the origin of any com-ponents.Continued on page 28

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Egypt continued from page 20

Finally, the name and addressof the exporter should appear onthe invoice. There should be atleast three copies of the invoicesent, more if the importer re-quests additional copies.

Exporters also must certify andlegalize commercial invoices. TheAmerican-Egyptian CooperationFoundation located in Chicagowill notarize and certify docu-ments for this purpose. Once thishas been done, the exporter canforward the invoices to the Egyp-tian Consulate for legalization.

(b) The Bill of Lading:

Bills of lading have no specialrequirements in Egypt. Common-ly used "To Order" bills are oftensufficient. Exporters should takecare, however, that the bills areconsistent with the informationshown on the packages and on theinvoices.

(c) The Certificate of Origin:

These certificates should con-tain the same basic informationexporters include in certificates oforigin for sales to most countries.The exporter should include theweight of the shipment inkilograms. The exporter alsoshould state that the goods are ofU.S. manufacture or origin. If anyforeign piece or component is in-cluded in the shipment, thatcountry of origin should be statedwith the percentage. Full namesand addresses of U.S. manufac-turers must be included as well.As with commercial invoices, ex-porters should anticipate thenecessity of the certification andlegalization of the certificate oforigin. Normally, an importer willrequest at least three copies ofthis certificate.

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(d) The Packing List:

Packing lists are optional forexports to Egypt. They are, never-theless, recommended. Packinglists help with the clearance ofgoods. As with bills of lading, ex-porters should take measures toinsure that information containedin packing lists is consistent withinformation contained in otherdocumentation.

(e) The Pro-Forma Invoice:

The pro-forma invoice servestwo important functions. First, itsupports the importer's applica-tion for importation. Second, itsupports the importer in openinga letter of credit (or as the start inthe negotiation of the import con-tract). Exporters should send anoriginal and four copies to the im-porter. Included on the pro-forma invoice should be the nameof the importer, the country oforigin, the type of commodity tobe imported, the customs tariff,the unit, the quantity, the price ona per unit basis, the basis of thecontract, and finally the amountowed in foreign currency.

(f) Appropriate Special Certifi-cates:

Several additional documentsmay become necessary before thetransaction can go forward. First,an "insurance certificate" may berequired. If this is the case, theEgyptian importer will normallyobtain this document. A "steam-ship company certificate" also maybe needed by the importer. Publicsector imports usually require anadditional "exchange allocation" toobtain foreign currency for repay-ment of the obligation. An "im-port license" is required forimports by private sector entities.(This license is also necessary forthe opening of a letter of credit.)

Exporters also should be awarethat the U.S. Government may re-quire a "U.S. shipper's export dec-laration" if the value is greaterthan $2,500 ($500 if the transac-tion involves shipment through theU.S. Postal Service). In rare in-stances, the Egyptian authoritiesmay require a disinfection certifi-cate or a sanitary certificate,depending on the item imported.

Air cargo shipments are treateda bit differently. First, of course,airway bills are used in place ofbills of lading. Second, the num-ber of copies of the airway bill re-quired will depend on the airlineused and the importer's demands.Third, normal international rulesregarding the transport of hazard-ous material, labeling and packag-ing, restricted goods and shipper'scertificate apply. The airline is anexporter's best contact for thespecific rules involved.

Like air cargo, mail and parcelpost are also treated separately.Postal documentation replaces thebill of lading. An invoice must becontained inside the parcel. Ex-porters also should mark packageswith the words "A.R.E. ImportNot Required" or "A.R.E. ImportPermit No. (insert the number),"as the case may be.

As is true with all documenta-tion, the exporter should makecertain that any paperwork signedby the exporter does not violateany U.S. laws or regulations. Thisis especially important with the in-surance certificate, the steamshipcompany certificate, and any otherdocumentation that the importerrequests of the exporter.

In summary, there are a num-ber of legal considerations an ex-porter should address whenconsidering trade with Egypt. Butfor those who plan ahead and sub-sequently avoid legal pitfalls,Egypt provides a ready market ofover 50 million consumers.

WIT

Wisconsin Intemational Trade -March/April 1991