The car market is anticipating the impacts of eliminating customs on Turkish-origin cars, as part of the Free Trade Agreement between Egypt and Turkey.
Many wonder about the expected reduction in the car prices, in addition to whether the agreement will take effect taking into consideration the political tensions between Turkey and various countries in the region, especially after the bombing of Syria.
The agreement will eliminate the remaining 10% customs on Turkish cars. Many debated on the economic feasibility of activating the agreement. Toyota Corolla, Fiat Tipo, and Renault Megane are the top brands to be affected by the deal.
Egypt has signed several free trade agreements with various countries that allow the free exchange of industrial goods and products without customs that may hinder trade.
Cars are considered among these products. According to these agreements, some cars will be exempted from customs duties completely, especially since some of these agreements have already been fully implemented, such as the Egyptian-European Association Agreement between Egypt and the European Union.
The exemption will not be limited to those cars, but will also include cars from South American countries like Argentina, Brazil, Paraguay, and Uruguay.
An official source at the Customs Authority ruled out any change in the Free Trade Agreement between Egypt and Turkey, noting that the decision of suspending or eliminating the agreement not only comes from an economic aspect, but is also issued according to sovereign decisions.
The source explained that the final tariff to be applied in early 2020 represents 10% of the customs duties on a car, pointing out that this percentage does not represent a significant difference in the pricing of Turkish cars due to the low number of Turkish cars in Egypt, compared to the application of the European Convention and the abolition of customs, which made a big difference in the European cars whose prices fell significantly.
He pointed out that the decline in the price of the Turkish lira will significantly contribute to the decline in prices of Turkish cars imported to Egypt.
Ambassador Gamal Bayoumi, secretary general of the Egyptian-European partnership agreement, said that the trade agreements signed by Egypt with various countries contributed to supporting the economy, adding that Egypt helped in setting a no-customs region which also included Jordan, Morocco, and Tunisia, in addition to the Free Trade Agreement between Egypt and Turkey which will be in effect early next year.
Bayoumi pointed out that the most important Turkish imports to Egypt are cars, spare parts, and ready-made clothes, while Egyptian exports are chemicals and fertilizers.
The ambassador said that Egypt benefited from the application of the European agreement by exempting customs on all Egyptian exports since the agreement in 2004, which led to a four-fold increase in Egyptian exports to the EU compared to before signing the agreement.
He added that more export means increasing production and creating new jobs, in addition to the EU’s support for the Egyptian economy, and programs to support the Egyptian government.
Bayoumi highlighted that the trade agreements signed by Egypt did not affect the localization of the automotive industry in Egypt, stressing that these agreements open a new door for the export of cars assembled in Egypt without customs to the agreement countries.
He also expects dealers to supply Turkish origin cars to the Egyptian market in order to benefit from customs exemption instead of importing from countries that do not have trade agreements with Egypt.
Bayoumi called for the intervention of the Consumer Protection Agency to put in place a specific mechanism for pricing cars that are excluded from customs, in order to avoid exploiting consumers.
Alaa El Sabaa, member of the automotive division at the Federation of Chambers of Commerce, said that with the application of the last tranche of the free trade agreement between Egypt and Turkey early next year, tariffs on Turkish-origin cars will be reduced by 10% until the cars are completely not subject to custom fees. This will represent only 4% of the total value of customs duties, which is equivalent to 40% of the official value of the car bill, and the value of customs reduction represents 2% to 2.5% of the total price of the car, pointing out that Turkish car prices will decline slightly.
El Sabaa pointed out that the pricing policy followed by each company, in addition to the different needs between each company and its counterpart would affect the prices of cars, besides customs exemptions. He added that some car companies will launch discount offers greater than the value of customs reduction because they did not make any offers to reduce the prices over the past period or provide free maintenance.
It is unlikely that agents and distributors who have already made offers before would make more offers after the customs exemption on Turkish cars. Some companies have more demand than others. Hence, the prices of their cars would not decline according to the mechanism of supply and demand.
El Sabaa also said that the application of the full customs exemption on Turkish origin cars would affect the sales of cars during the last quarter of this year, stressing that the main factor in the prices of cars in Egypt is the foreign exchange rate of the dollar against the local currency pound. Car prices are expected to decline in the coming period if the dollar depreciates.
He criticized the state’s tendency to reduce the imports of cars as a previous step to boost and support the local industry.
He pointed out that the depreciation of the dollar contributed significantly to the increase in car imports due to the low cost, which helped to increase the demand for imported cars of high quality and provide reasonable prices for consumers due to trade agreements that allow the entry of some cars without customs, which resulted in changing the consumers’ point of view.
According to El Sabaa, there are no incentives that would support the domestic automobile industry. He condemned the imposition of additional tax charges on imported cars and local cars alike, with incentives offered only in the case of increased domestic production or raising the percentage of local components in the process of assembling cars.
He stressed the need to provide unconditional incentives in line with the current situation of the company, so that local cars would have a competitive advantage against their counterparts by exempting the requirements for its production from customs, which would contribute to the decline in the price of the car significantly. This in turn will be reflected in reducing imports and increasing cars collected locally. This is considered the most appropriate alternative for imposing taxes on all cars and increasing their prices and then providing incentive to the local industry at a certain performance.
He demanded that the government addresses manufacturers to reduce the prices of cars in exchange for some privileges for local assembling and manufacturing, which would deepen the local industry.