According to Vice President of the Transport Division of the Federation of Egyptian Industries (FEI) Samir Allam, the division prepared a memorandum clarifying the impact of the MERCOSUR agreement on the automotive industry. The division will present the memorandum to the Ministry of Industry during the current week.
Allam added that the signing and implementation of the MERCOSUR agreement, along with the elimination of customs barriers between Egypt and MERCOSUR countries, mainly Brazil and Argentina, will negatively affect the automotive industry in Egypt, especially since Brazil is one of the world’s giants in the automobile industry, producing annually about 3 million cars, next to the size of its feeding industries.
Allam stated to Daily News Egypt that with the absence of a strategy regulating the automotive industry in Egypt and the tendency of the state to liberalise its foreign trade will eliminate the existing opportunities for the automobile industry and open the door to import spare parts and feeder industries at lower costs and international quality.
Allam expressed his fear of repeating the model of the suspension of the company Mercedes from manufacturing in Egypt after the removal of tariff barriers gradually between Egypt and the European Union, as the global companies were moving to manufacturing in Egypt to overcome the customs barrier, which raises the price of cars significantly; however, with the liberalisation of trade with MERCOSUR countries, some investors will lose sight of pumping their investments into the Egyptian market, after the absence of economic feasibility for manufacturing.
It is noteworthy that the Argentine parliament ratified the free trade agreement between Egypt and MERCOSUR in May, which contributes to the imminent entry into force of the agreement and the movement of trade exchange between Egypt and the assembly countries of Brazil, Argentina, Uruguay, and Paraguay.
Nevertheless, from the perspective of some, the convention may pose a major threat to the domestic vehicle industry and industries.
With the removal of tariff barriers and the absence of a government strategy for the industry, the convention will write the death certificate of that industry and eliminate the remaining hopes for its advancement.
“The agreements are losing their effect if there is a real industry in Egypt,” Hussien Mustafa, executive director of the Egyptian Automobile Manufacturers Association (EAMA), said. “The agreement can be used for our benefit, as our production in Egypt reaches the numbers that qualify us for export, with the availability of quality, price, and international specifications. We could benefit from those agreements that remove any customs barriers to and from Egypt.”
He added that the Egyptian-European partnership did not affect European car sales in Egypt, and Egypt is still witnessing the rise in the prices of European models with the gradual elimination of customs duties. This gives an indication that the liberalisation of foreign trade will not directly affect the local product, and the locally manufactured cars still have the price advantage.
“The MERCOSUR agreement will not have a strong impact in the near term, and it is difficult to see the Brazilian cars being invaded by the Egyptian market,” he said. “I would not expect the Mercedes-Benz stopover from manufacturing in Egypt to be repeated after the MERCOSUR enters into force.”
“It is clear that free trade agreements have a negative impact on the automotive industry in Egypt,” said Raafat Masroga, former chairperson of the SMG Engineering Car Company and honorary chairperson of the Automobile Market Information Council (AMIC). “We do not forget Egypt’s insistence on excluding the automobile sector from the free trade agreement with Europe for five years, and then gradually applied over the course of 10 years, ending 2019.”
“The free trade agreements will force the global car manufacturers to drop Egypt from their calculations in the idea of consolidation,” Masroga told Daily News Egypt. “The government should think about getting out of this position.”
Amr Nassar, executive director of MCV Projects and secretary general of the Export Council for Engineering Industries, said that the entry into force of the free trade agreement between Egypt and MERCOSUR countries will affect the vehicle industry in Egypt, especially the bus and transport industry in Egypt.
He considered that the bus industry represents the last hope for the vehicle industry in Egypt, and with the liberalisation of our foreign trade and the absence of government vision to develop the vehicle industry, this will eliminate hopes in the development of the industry.
Nassar said Brazil is a strong competitor to Egypt in the bus and transport industry and will be a major problem for the bus industry in Egypt if its buses are exported to Egypt without customs.
Egypt will not be able to reciprocate, because a country like Brazil has internal protection that protects the domestic industry against any foreign product. It provides all means of financing for the Brazilian industry and obliges all government agencies to purchase the local product. This means that Egypt will not be able to export it. In return, Brazil will benefit the most from that agreement.
For the auto industry, the impact of the agreement will depend on the decisions of the parent companies. The decision of the parent companies to export their cars to Egypt from the MERCOSUR countries does not have the Egyptian government doing anything to protect the industry in the absence of the strategy.
If the agreement is activated, it will pose a danger to the bus and transport industry, because the agreement could create a phenomenon of industrial cheating. Anyone can import a bus from Brazil that is dismantled in two or three parts and assembled in Egypt.”
The Ministry of Trade and Industry ruled out that the MERCOSUR agreement would open the door to industrial fraud after the fears of vehicle manufacturers and considered that trade liberalisation with the MERCOSUR group would damage the local product in the absence of preferential procedures for the Egyptian product.
“The MERCOSUR agreement could open the door to industrial fraud in the bus industry,” said engineer Tarek Cain.
The bus manufacturers have become increasingly concerned about the possibility of any importers of two or three bus parts assembled in Egypt and then carrying an “Egyptian product” label. They can then be exported and benefit from export subsidies, while it does not add economic benefit to the country.
A government source confirmed that the MERCOSUR agreement was activated since Argentina approved it last May and that the ministry is seeking awareness campaigns for investors and manufacturers regarding the importance of the agreement and clarifying the state strategy to benefit from the agreement.
Minister of Trade and Industry Tarek Kabil announced in May the agreement of the Argentine parliament on the Free Trade Area Agreement between Egypt and the MERCOSUR countries signed in 2010, thus completing the ratification of the MERCOSUR member countries: Brazil, Argentina, Uruguay, Paraguay, and Egypt.
According to the ministry statement, Kabil said that the entry into force of the agreement will contribute to increasing the volume of trade and investment exchange between Egypt and the MERCOSUR countries, which reached about $3bn last year.
Egypt ratified the agreement in 2013 to open new markets for Egyptian products in Latin American countries and increase exports, especially as exports contribute about 30% of Egypt’s GDP, according to the Ministry of Trade and Industry.
In 1991, since the signing of the Treaty of Asunción, the MERCOSUR Group was established with the membership of Brazil, Argentina, Uruguay, and Paraguay, and entered into force in 1994 after the signing of the Ouro Preto Protocol, which established the financial institution of MERCOSUR.
MERCOSUR is an economic bloc of the Common Market of South American/Latin American Countries, which includes Argentina, Brazil, Uruguay, and Paraguay.