The final phase of the EU-Egypt Association Agreement that promises the exemption of customs duties on imported European cars came into force this month, resulting in duties on cars imported from Europe falling to zero per cent.

Customs duties on cars with engines of 1,300 cc capacity imported from Europe were eliminated in 2016.

For cars with engines of 1,600 cc and above, reductions took place annually at a rate of four per cent until they reached zero per cent this year.

The zero tariffs will also be applied on some Korean and Japanese cars produced in European Union countries.

However, the imported cars will still be subject to VAT at 14 per cent, an 0.5 per cent industrial and commercial profit tax, a three per cent resources development fee, and a one per cent additional tax.

The removal of customs duties has seen several car brands announcing decreased prices to the delight of Egyptian customers. But several car dealers contacted by Al-Ahram Weekly said they had not yet applied the new prices as they are waiting for new cars with the zero tariff to arrive.

An employee at one of the dealers said that a significant price drop would be seen on cars with an engine capacity over 2,000 cc, because the tariffs on them cancelled had reached 40 per cent. However, this category of cars represents only five per cent of the Egyptian market.

Noureddin Darwish, deputy head of the Cars Division at the Cairo Chamber of Commerce, said that cars with an engine capacity of 1,600-2,000 cc would see a price drop of 20 per cent, while those of more than 2,000 cc would see a drop of 23 per cent.

Darwish said the drop in prices would encourage customers to buy new cars, and he expected to see more car sales than in 2018.

Egypt’s passenger car sales rose 55 per cent year-on-year in 2018 to reach 14,640 vehicles in October, according to data from the Automotive Information Council (AMIC). They registered a 39 per cent year-on-year increase in the first 11 months of the year, reaching a total of 123,500 units compared to 88,500 in the same period of 2017.

However, Hamdi Abdel-Aziz, former head of the Federation of Egyptian Industries Engineering Chamber, said that a drop in European car prices as a result of the Agreement would be affected by monopolies in the car market in Egypt and the rise in the value of customs dollars.

In December, the Ministry of Finance raised the customs dollar exchange rate for non-essential and luxury goods, including cars, to LE18, tying it to the Central Bank of Egypt’s (CBE) dollar exchange rate.

The customs dollar exchange rate had been fixed at LE16 to the US dollar for the past 13 months. It is used to calculate customs duties on imports.

Abdel-Aziz said that no price drops had been seen in previous years, despite the gradual reduction in customs duties. No price drops were seen on cars with engines of 1,300 cc imported from Europe, despite their enjoying zero tariffs since 2016.

European cars were being sold according to their global position and not necessarily their cost, he said, adding that the parent European companies increased the prices of their brands annually.

The EU-Egypt Association Agreement governs trade relations between Egypt and the EU and is modelled on the Euro-Mediterranean Partnership Agreements between the EU and its partners on the southern flank of the Mediterranean, according to the EU website.

It incorporates free-trade arrangements for industrial goods, concessionary arrangements for trade in agricultural products, and the prospect of the greater liberalisation of trade in services and farm goods.

The agreement was signed in Luxembourg in June 2001 and entered into force in June 2004, following ratification by EU member states and Egypt.

It applies to industrial, agricultural and processed agricultural products and stipulates that Egyptian imports of products originating in EU member states shall be free of customs duties, or any other charges having equivalent effect, and free of quantitative restrictions, or any other restrictions having equivalent effect, in accordance with a specific timeline.

For vehicles, all customs duties should be eliminated by 2019, according to the agreement. 

*A version of this article appears in print in the 10 January, 2019 edition of Al-Ahram Weekly under the headline: Zero car tariffs in place