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Country Commercial Guides for FY 2000: Egypt Report prepared by U.S. Embassy Cairo, released July 1999

CHAPTER VII. INVESTMENT CLIMATE

A1. Openness to Foreign Investment

Increased foreign investment continues to figure prominently in the Government of Egypt's (GOE) economic strategy. The United States Government views foreign investment in Egypt as a key element in sustaining high economic growth rates in Egypt. In the last two years, the Egyptian government streamlined and strengthened laws related to foreign investment. These efforts include measures to reduce limits on foreign ownership and largely eliminate previously sharp legal distinctions between Egyptian and foreign firms. Key laws related to investment include:

Investment Incentives and Guarantees Law 8 of 1997: This statute, which replaced a 1989 law governing foreign investment, grants projects in 16 high-priority activities special exemptions and incentives, as well as explicit guarantees, such as a prohibition against nationalization. Companies established under Law 8 enjoy a five-year tax holiday from corporate income tax. Companies established in new industrial zones or in special projects identified by the Social Fund for Development enjoy a ten-year tax exemption. Investments in areas outside the Nile Valley receive twenty years tax holiday. The law also grants exemptions from certain labor requirements under the Companies' law or the Labor law.

Law 3 of 1998 Amending Companies Law 159 of 1981: Law 3 streamlined the procedures for establishing a new company. The most important contribution of Law 3 is the elimination of the requirement for investors to obtain the approval of the Companies Department in order to establish a new company. Under Law 3, investors need only notify the Companies Department of their plans. Another important feature of Law 3 is its requirement that companies comply with Egyptian accounting standards. The law also provides a company or individual the right to appeal the denial of an application for incorporation.

Amendments to Capital Market Law 95 of 1992: Law 95 and its amendments and regulations govern the capital markets. In 1998 the government made significant amendments and changes to Law 95 to strengthen stock market regulations against fraud, price manipulation, and insider trading. Law 158 of 1998 allows bookkeepers and companies dealing in central depository to dematerialize shares (i.e., replace physical entries for securities with book entries).

Banking Law 155 of 1998: Law 155 permits private sector ownership of Egypt's four public sector banks. The GOE has not yet announced specific plans for the privatization of a public sector bank. Insurance Law 156 of 1998: Law 156 amended law 91 of 1995. Law 156 removes the 49% ceiling on foreign ownership, permits privatization of national insurance companies, and abolishes the ban on foreign nationals serving as corporate officers.

Law 1 of 1998: Law 1 amended Law 12 of 1964, the General Egyptian Maritime Organization Law. Law 1 permits the private sector, including foreign investors, to conduct most maritime transport activities, including loading, supplying, and ship repair.

Law 18 of 1998: Law 18 amended Law 12 of 1996 to allow the government to sell minority shares of electricity distribution companies to private shareholders.

Law 19 of 1998: Law 19 changed the status of the national telecommunications authority (TELECOM EGYPT) to a shareholding company with the government as majority shareholder, laying the legal basis for some degree of privatization.

Tenders law 89 of 1998: Law 89 amends Tenders and Bidding Law 9 of 1983 governing foreign companies' bids on public tenders. It requires the government to consider both price and best value and to issue an explanation for a bid's refusal. However, the new tender law remains restrictive since an Egyptian domestic contractor is accorded priority if its bid does not exceed the lowest foreign bid by more than 15%.

Law 161 of 1998: Law 161 addresses the protection of the Egyptian economy from harmful practices in international trade such as dumping.

Commercial Law of 1999: The People's Assembly passed a new Commercial Law for Egypt that superseded the prior legislation dating from 1883. The new Law has more than 700 articles arranged in the five chapters: General Commerce, Commercial Contracts, Banking Transactions, Commercial Papers (including checks), and Bankruptcy.

Barriers to Investment: Obstacles include bureaucracy; a shortage of skills in midlevel management; periodic continued shortfalls in credit facilities; inadequate property rights (IPR) protection and enforcement; and non-tariff trade barriers.

In addition, pharmaceutical prices remain controlled, although the government has decontrolled prices on other industrial products. The government uses a standard cost-plus formula to determine pharmaceutical prices for new-to-market products. Although foreign and Egyptian pharmaceutical companies argue that the price control system constrains development of the sector, it is a politically

popular policy likely to remain in effect for the foreseeable future. Most agricultural product price controls have been removed except those on cigarettes, rationed edible oil, and rationed sugar.

Privatization: The government launched a privatization program with Public Enterprise Law 203 of 1991 and executive regulations establishing the regulatory framework for the sale of 314 public enterprises (later increased to 319 enterprises). The Public Enterprise Office (PEO) is responsible for advising on the sale of Law 203 companies. The law permits sales to foreign entities.

The pace of privatization slowed over the last year. As of March 1999, 105 companies were privatized to the extent of 51% or more of their value. The firms were privatized as follows: 31 majority initial public offerings (IPOs), 29 liquidations, 28 sales to employee ownership associations, and 17 sales to anchor investors.

Egypt's privatization program broadened in the past two years with the government opening maritime, telecommunications, and infrastructure sectors to the private sector on a build-own-operate-transfer (BOOT) basis. The privatization plan for the electricity sector is a particularly noteworthy development. In addition to awarding three BOOT contracts for power generation in 1998 and 1999, the Egyptian Electrical Authority (EEA) named a consortium led by Merrill Lynch and the Egyptian investment bank EFG-Hermes to evaluate the country's seven state-owned power generation and distribution companies for privatization. These assets have an estimated aggregate value in the range of $12-14 billion. An offering of up to 20% of the Cairo district power company is expected in the near future, perhaps as early as Fall 1999.

More private sector companies, long known as closed or family businesses, are now expanding and going public, making bond or stock offerings to the public. This development represents an area of opportunity for domestic and overseas investors. Foreign investors are allowed to purchase stocks and bonds of private firms, and there are no restrictions or limits on the percentage of shares which a foreign party may acquire.

U.S. Support for Development of the Egyptian Private Sector: The U.S. Government is engaged in a broad array of projects to strengthen the Egyptian economy and improve its business climate. USAID programs reflect the importance attached by the United States and Egypt to expanding bilateral investment and trade ties. For example, USAID activities promote the latest and most appropriate technologies, market opportunities, management training, international quality standards, and improved business links through computer information systems and facilities, among others. USAID programs also include assistance in support of the Egyptian Government's privatization program.

A2. Conversion and Transfer Policies

Repatriation of Profits and Capital: Egypt largely eliminated foreign exchange transfer restrictions in 1991. Foreign Currency Law 38 of 1994 further relaxed restrictions on capital transfers and emphasized the right of individuals and companies to transfer foreign exchange out of Egypt. Egyptian law allows individuals and businesses to conduct all normal foreign exchange transactions, including establishing foreign exchange accounts and transferring foreign exchange in and out of Egypt. Authorized banks may provide the full range of foreign exchange transactions, including accepting deposits, executing transfers, and opening letters of credit. However, while banks may conduct forward foreign exchange transfers for their customers, they are prohibited from conducting forward transactions on their own behalf. Law 38 maintains some restrictions on the transfer of real estate sales proceeds owned by foreigners who are not residing in Egypt, requiring such proceeds to be transferred over a five-year period. Foreign currency is to be made available at banks and foreign exchange bureaus. Over the past year firms report having occasionally experienced delays in the processing of their requests to convert Egyptian pounds to foreign currency.

Bilateral Investment Treaty: The 1992 U.S.-Egypt Bilateral Investment Treaty provides for free transfer of dividends, royalties, compensation for expropriation, payments arising out of an investment dispute, contract payments, and proceeds from sales. Transfers are to be made in a "freely convertible currency at the prevailing market rate of exchange on the date of transfer with respect to spot transactions in the currency to be transferred".

Remittances: Law 8 of 1997 stipulates that non-Egyptian employees hired by projects established under Law 8 are entitled to transfer their earnings abroad.

Royalty Payment: Conversion and transfer of royalty payments are permitted when a patent, trademark, or other licensing agreement has been approved under Law 8 of 1997.

A3. Expropriation and Compensation

The government has taken no expropriation actions since the 1960s. As noted in section A1, Law 8 of 1997 provides guarantees against nationalization or confiscation of investment projects under the law's domain. The law further guarantees against seizure, requisition, blocking, and placing under custody or sequestration. It also offers guarantees against full or partial expropriation of real estate and investment project property. The U.S.-Egypt Bilateral Investment Treaty also provides protection against expropriation.

A4. Dispute Settlement

Egypt acceded to the International Convention for the Settlement of Investment Disputes in 1971. It is a member of the International Center for the Settlement of Investment Disputes (ICSID) which provides a framework for arbitration of investment disputes between the government of the host country and a foreign investor from another member state, provided that the parties agree to such arbitration. Without prejudice to Egyptian courts, Law 8 of 1997 recognizes the right of investors to settle disputes within the framework of bilateral agreements, the ICSID or through arbitration before the Regional Center for International Commercial Arbitration in Cairo. The U.S.-Egypt Bilateral Investment Treaty also provides for non-binding, third party arbitration in investment disputes.

Egypt's Dispute Settlement Law 27 of 1994 and its 1997 amendment provided a comprehensive framework for the arbitration of all domestic and international commercial disputes and limited challenges of arbitration award in court. Law 27 was amended in 1997 to include disputes between public enterprises and the private sector. A special order is required to challenge an arbitration award and such orders are only granted if there is a strong case for successfully challenging the award. The law consolidated and streamlined various confusing and conflicting rules that left the enforcement of international and domestic awards in doubt.

Egypt adheres to the 1958 New York Convention on Enforcement of Arbitrary Awards; the 1965 Washington Convention on the Settlement of Investment Disputes between States and the Nationals of Other States; and the 1974 Convention on the Settlement of Investment Disputes between the Arab States and Nationals of Other States.

Investment disputes involving U.S. persons or companies do exist. Resolution of cases can involve lengthy court proceedings and negotiations, as illustrated by the cases below.

In 1961, a U.S. sewing machine manufacturer had its warehouse in Alexandria requisitioned through a ministerial decision. The company did not bring any legal action at that time, thinking that it did not have a legal basis through which to obtain redress. In 1980, after the change of government, the U.S. Company did sue the occupant of the warehouse (a subsidiary of the Ministry of Supply and Industry). In 1997, 17 years later, the Egyptian court decided that the act had not been an expropriation because the requisition was only temporary (so far, 37 years temporary) and the government entity occupying it had taken no action to expropriate it. Further, the court rejected the lawsuit altogether because it had not been filed within 60 days of the original requisition in 1961. The U.S. Company is now appealing the decision.

Ten years ago, a U.S. company's contract with a government-owned airport authority to operate airport duty-free shops was canceled and the government-owned airline was given the management contract. Inventory and equipment were confiscated, which would indicate that a de facto expropriation and nationalization had taken place. The U.S. owner initiated several lawsuits in the Egyptian courts, and on November 25, 1997, the Egyptian Council of State found in his favor. The Airport Authority has since refused to honor the judgment and the U.S. Company has initiated criminal proceedings against the director of the Airport Authority. The U.S. Ambassador to Egypt wrote to the Prime Minister in support of the U.S. company in May 1998 and is currently supporting an attempt at an amicable settlement, as requested by the U.S. company.

A U.K./U.S. company entered into a contract with an Egyptian public sector entity to operate two hotels in Egypt. Disputes arose over both properties, and the government party was reluctant to settle the disputes in court. Both disputes were submitted to ad hoc binding arbitration in 1994. The decision of the arbitrators was that the U.K./U.S. Company would return one hotel and that the government entity would pay the U.K./U.S. party a specific amount to compensate it.

The government party appears to have refused to honor, or at least to have circumvented, the compensation requirement by depositing the funds directly with the court and making them available to the U.K./U.S. party only with its approval, which it has not given. The government entity then obtained a court order and seized the hotel property, which it was to have received per the arbitration agreement. Apparently, the government entity then, in 1997, forcibly seized control of the second property, the management of which had been awarded to the U.K./U.S. Company.

This complex matter was submitted for arbitration to the International Center for the Settlement of Investment Disputes (ICSID), Washington D.C., by the U.K./U.S. party in March 1998, claiming compensation under an investment promotion and protection agreement (IPPA) between Egypt and the U.K.

The British Embassy is providing primary support to the U.K./U.S. Company, given majority U.K. ownership, and the U.S. Embassy is supporting efforts to resolve the dispute.

A5: Performance Requirements and Incentives

Performance requirements are not specified in Investment Law 8. The ability to fulfill local content requirements is no longer required to obtain an approval to set up an assembly project. However, assembly industries must meet a minimum local content requirement of 40% in order to benefit from customs tariff reductions on imported industrial inputs. Unlike earlier laws, Law 8 also does not put a floor for the percentage of Egyptians employed.

Tax Incentives: Under Law 8 of 1997, foreign companies enjoy various tax incentives. Law 8 provides a general tax exemption of five years for any project operating in one of the 16 fields covered by the Law. Specific incentives of ten years are granted to projects in new industrial zones, certain urban communities, remote areas, and Social Fund for Development projects. Tax exemptions of 20 years are granted to projects outside the Cairo area. All investment projects are granted exemptions from notarization and notification fees; payment of inheritance tax on 25% of heir's share in invested capital; and income tax on a portion of dividends after the exemptions expire.

Companies covered under Law 3 of 1998 can benefit from incentives (notably tax holidays) offered for investments in designated areas set forth in the Communities Law and have access to subsidized fuel and power. In addition, companies registered in the Commercial Register that employ more than 50 employees are eligible for a five-year tax holiday.

Pricing and Customs Preferences: The Egyptian government may not intervene to get the prices or profits of companies established under Law 8. The Egyptian government does regulate prices for basic foods and commodities (i.e. bread and sugar) and pharmaceuticals. Per Ministry of Finance decree, machinery and equipment imported for projects operating under Law 8 are assessed a flat 5% tariff rate. Assembly industries must meet a minimum local content requirement of 40% to benefit from customs tariff reductions on imported industrial inputs.

Geographical Areas: There are no formal legal geographical restrictions on investments. However, the heavy congestion in Cairo often prompts government officials to deny approval for investments in Cairo unless an economic rationale exists. Upon request, however, government officials will assist investors in locating a site for the project, for example, in one of the newer industrial sites located outside Cairo and will sometimes provide necessary infrastructure. In addition to new areas surrounding Cairo, the government has targeted Upper Egypt (Upper Egypt refers to governments in the south of Egypt) for development by private investors. Land in southern industrial zones will be offered free-of-charge and the Government will provide infrastructure (water, sewer, electricity, and gas) and title transfers to the developer three years after project startup.

Export and Import Policies: The list of goods requiring prior approval before importation was eliminated in 1993. A poultry ban was lifted by the end of July 1997 and was replaced by an 80% tariff subject to annual reduction. On January 1, 1998, a textiles ban was also lifted. The remaining ban on apparel is scheduled to end on January 1, 2002.

1998 witnessed the implementation of several GOE measures which had the effect of limiting imports. Ministerial Decrees 577 and 580 require cars to be imported in the year of production. Ministerial Decree 619 requires imports to be accompanied by a certification of origin. In addition, Decree 619 stipulates that consumer goods (durable and non-durable) be shipped directly from the country of origin. Decree 619 also had the effect of rendering free trade zones third countries, limiting their utility as domestic storage points. In May 1999, the Central Bank of Egypt required 100% coverage for credit lines opened for certain commodities imported for resale purposes. Those commodities include sugar, steel, and luxury goods.

Product specification also can be a barrier to trade. For example, the Ministry of Health requires that beef imported for direct human consumption have less than 7% fat, a level virtually never reached in premium beef exports. Ministerial Decree 1 of 1998 sets textile labeling requirements that are very difficult to meet.

Some items are inspected for quality control prior to admittance into Egypt. The Government stresses that standards applied to imports are the same as for domestically produced goods, but in practice, imports are subject to different inspection tests. Tariffs range between 5-40%, with exceptions on the upper end for luxury goods (automobiles, tobacco, and alcoholic beverages).

Egypt sets the shelf life of processed foods by regulation, as opposed to the standard international practice of allowing producers to determine the life of their product. Early in 1994, the Government decreed that products (mainly food) entering Egyptian ports should have 50% or more of their shelf life remaining. Egyptian shelf life standards ignore quality differences between producers and are often established without scientific basis. An August 1994 decree applies shelf life standards to certain non-food imports such as syringes and catheters.

The import process remains cumbersome. Imported refrigerated containers of foodstuffs typically take 25 days to clear customs. Two-month delays or longer are not uncommon.

Export subsidies do not exist and the Government does not impose export performance requirements. Exporting industries, including investment Law 8 projects, receive rebates on duties paid on imported inputs at the time of export of the finished product. Animal hides and scrap metals (except stainless steel) are the only items banned from export. The import-export paperwork process has been greatly simplified from past Egyptian practice, but several days are still needed for processing.

A6: Right to Private Ownership and Establishment

Law 8 of 1997, Law 3 of 1998, and Law 95 of 1992 govern investment in Egypt. Foreign investors may own up to 100% of businesses within the scope of this legislation. This section also discusses several other regulations.

Investment Incentives and Guarantees Law 8 of 1997: Law 8 of 1997 is designated to allocate investment to targeted economic sectors and to promote decentralization of industry from the crowded geographical area of the Nile Valley. It repealed Investment Law 230 of 1989, except for the requirement for annual distributions to employees of not less than 10% of profits. Law 8 of 1997 and its executive regulations and amendments (Prime Ministerial Decree 2108 of 1997 and Prime Ministerial Decree 1585 of 1998) group some 20 incentives under one law. The law allows 100% foreign ownership and guarantees the right to remit income earned in Egypt and to repatriate capital. Key provisions include: the guarantee against confiscation, sequestration and nationalization; the right to own land; the right to maintain foreign currency bank accounts; freedom from administrative attachment; the right to repatriate capital and profits; and equal treatment regardless of nationality.

Under Law 8, qualifying investments in 16 fields are assured approval, effectively creating a positive list These areas include land reclamation; fish, poultry and animal production; industry and mining; tourism (covering hotels, motels, tourist villages, and transportation); maritime transportation; refrigerated transportation for agricultural products and processed food; air transportation and related services; housing; real estate development; oil production and related services; hospitals and medical centers that offer 10% of their services free of charge; water pumping stations; venture capital; computer software production; projects financed by the Social Fund for Development; leasing; and guarantees for subscription in securities.

Additional Incentives and Measures: Law 8 and other measures provide projects in the government-sponsored Toshka or New Valley developments with significant incentives. In June 1998, the government added the new industrial zones East of Oweinat and Northwest of the Gulf of Suez to the list of special government projects. As of May 1999, there are eleven new industrial zones built in satellite cities in the desert areas outside of Cairo and Alexandria and around the cities of Minya and Beni Suef.

Some projects still require prior approval from relevant ministries in addition to GAFI, including investments in the Sinai; all military products and related industries; and tobacco and tobacco products. Law 15 of 1963 prohibits foreign ownership of areas designated as agricultural lands, except for desert reclamation projects. Presidential Decree 284 of 1997 made the General Authority for Free Zones and Investment(GAFI) responsible for investor incentives and guarantees.

Companies Law 3 of 1998, amending Law 159 of 1981: This measure applies to investments in sectors not covered by Law 8 of 1997, including shareholder, joint stock, and limited liability companies and representative and branch offices. Law 3 allows for automatic company registration upon presentation of an application to the Companies Department at the Ministry of Economy, with some exceptions. These exceptions include denials based upon noncompliance with procedures and laws, as well as lack of the qualifications requisite to operating a business. Founders of joint stock and limited liability companies must submit a bank certificate showing a 10% deposit of the issued capital to the Companies Department. The amendment also provides for the right to petition a denial of incorporation; removes the requirement that at least 49% of shareholders be Egyptian; allows 100% foreign representation on the board of directors; and strengthens accounting standards.

Representative offices may be established in Egypt to conduct market research in scientific, technical or consulting fields. They are required to be funded entirely by remittances from abroad in foreign currency. Representative offices cannot engage in commercial activities and are not subject to Egyptian tax. The Companies Department at the Ministry of Economy regulates representative offices. Branch offices are found mainly in the sectors of oil, construction, and construction consulting industries and services. They come under the supervision of the Companies Department of the Ministry of Economy.

Capital Market Laws: The Capital Market Law 95 of 1992 grants foreign investors full access to capital market and, in combination with the Banking Laws of 1992 and 1993, constitute the primary regulatory framework for the financial sector. The Law permits the establishment of Egyptian and foreign companies that provide underwriting of subscriptions, brokerage services, securities and mutual funds management, clearance and settlement of security transactions, and venture capital activities.

Law 95 also authorized the issuance of corporate bonds, eliminated the 7% cap on bond interest rates, and authorized bearer shares. The Law eliminated taxes on income from most stocks and bonds; established mechanisms for arbitration and legal dispute resolution; and prohibited unfair market practices. Law 95 empowered the Capital Market Authority (CMA) to be an independent watchdog over the securities industry. The government in 1998 decreed that listed companies must adopt international accounting and auditing standards, and the CMA ruled that directors of securities firms must fulfill expertise requirements. The CMA and the Cairo Stock Exchange regularly publish reports on trading and market conditions.

Banking Laws: Banking Law 155 of 1998 set the legal basis for the privatization of the four public sector banks. Laws passed in 1992 and 1993 allow foreign bank branches to deal in Egyptian currency. Foreign banks are guaranteed national treatment. The government requires banks to follow systems of loan classification and provisioning. Early in 1997 the Central Bank of Egypt (CBE) required banks to apply International Accounting Standards (IAS) and to publish an annual financial report based on IAS. To facilitate greater transparency in the economy, the CBE began publishing in April 1997 a monthly bulletin containing information on key economic and financial developments.

According to a March 1999 Ministry of Economy report, the banking sector in Egypt is comprised of 4 public sector banks, 24 private and joint venture commercial banks, 2 real estate banks, 1 industrial development bank, 1 agricultural bank, 11 joint venture business and investment companies and 20 branches of foreign banks.

In January 1998 the People's Assembly passed Income Tax Law 5 which eliminated the tax deduction for interest paid on funds borrowed by banks to purchase government treasury bills, as well as the deduction for interest earned on T-bills. Law 5 also allows banks to double their non-performing loans provisions to 10% of their pre-tax income. The new law is intended to spur banking services innovation and loan activity to smaller businesses.

Leasing Law 95 of 1995: Law 95 allows for the leasing of capital assets and real estate. It is designed to reduce the high start-up costs faced by new investors. Notably, the law specifically allows for the purchase of real estate assets through leasing mechanisms, superceding old laws that limited the right of foreigners to own land.

R&D Projects: With the exception of government-funded R&D programs in the agricultural field, there are not large-scale R&D activities in Egypt. There is no discrimination against U.S. and other foreign firms wishing to participate in R&D programs in Egypt. Most Egyptian R&D programs are established by government initiative to target specific problems and opportunities. Although science and technology (S&T) development has been declared an official priority, the percentage of government budget for S&T spending is low.

A7: Protection of Property Rights

The Egyptian Constitution of 1971, as amended in 1980, states that the Islamic Law (Shari'a) is the basis of all laws. Laws issued prior to 1980 need not comply with this provision, but new regulations must conform with Islamic Law. The 1948 Civil Code and the 1883 Commercial Code were the basic laws governing commercial contracts and transactions. The People's Assembly approved in May 1999 a new Commercial Law amending and largely superceding the 110-year-old commercial code.

The Egyptian legal system provides protection for real and personal property, but laws on real estate ownership are complex and titles to real property may be difficult to establish and trace. The government is moving slowly to modernize the laws on real estate ownership and tenancy. In 1997, the Government of Egypt (GOE) passed legislation eliminating price controls on commercial space following enactment of a similar law pertaining to agricultural land leases in 1996.

The mortgage facility in Egypt is underdeveloped. Real estate mortgages can be registered with the Land Register, but the registration fee is prohibitive, equal to 1.5% of the amount being secured by the mortgage. Residential mortgages are basically unenforceable because the legal system provides no right to evict for non-payment. Pledges of personal property are possible, but they are only effective if the creditor takes actual possession of the property. The only non-possessory security interest in personal property available in Egypt is a commercial mortgage or mortgage of the fonds de commerce This type of mortgage covers tangible as well as intangible assets of a business (ranging from equipment to good will) and is registered at the Commercial Register, but can be granted only by banks registered with the Central Bank.

Intellectual Property Rights: Due to a lack of progress in patent protection and in the enforcement of copyright protection, the United States Trade Representative placed Egypt on a priority watch list in April 1998, and retained this designation in 1999. Egypt is a signatory to the GATT TRIPS Agreement, the Bern Copyright Convention, the Paris Patent Convention, the Paris Convention for Protection of Industrial Property of 1883, the Madrid Convention of 1954, and the Nice Convention for the classification of goods and services.

Patents: The existing Egyptian patent law (Law 132 of 1949) provides protection below international standards. It contains overly broad compulsory licensing provisions and excludes from patent ability substances prepared or produced by chemical processes if such products are intended for food or medicine. The patent term is 15 years from the application filing date, compared with the international standard of 20 years. A 5-year renewal may be obtained only if the invention is of special importance and has not been adequately worked to compensate patent holders for their efforts and expenses. Compulsory licenses, which limit the effectiveness of patent protection, are granted if a patent is not worked in Egypt within three years or is worked inadequately.

Egypt has drafted, but not passed, legislation designed to improve patent protection by providing product versus process patents, increasing the protection period to 20-years, and offering fair prerequisites for compulsory licensing. However, the government may opt to delay implementation of the legislation, once passed, to take advantage of the transition period through 2005 granted to developing countries under the WTO TRIPS agreement.

Copyrights: Since late 1997, Egypt has strengthened the enforcement of copyright protection laws already on the books, although enforcement remains erratic and inadequate. Law 29 of 1994 amended the Copyright Law (Law 38 of 1992) to ensure that computer software was afforded protection as a literary work, allowing it a 50-year protection term. Law 38 of 1993, an amendment to the out-of-date 1954 copyright law, increased penalties against piracy and provided specific protection to computer software. A 1994 decree also clarified rental and public performance rights, protection for sound recordings, and the definition of personal use.

Trademarks: Egypt is considering completely revising its laws in order to enhance legal protection for trademarks and industrial designs. The current trademark law, Law 57 of 1939, is not enforced strenuously and the courts have only limited experience in adjudicating infringement cases. Fines amount to less than $100 per seizure, not per infringement. Judgments and enforcement must be made separately in each of the 26 governorates.

The Commercial Register and the Ministry of Justice are now studying a new trademark law, which takes into consideration the duration of the non-use of a registered trademark according to international standards. In the existing law, the duration is five years while under the TRIPS Agreement, the duration is only three years.

Trade Secrets: Egypt does not have specific trade secrets legislation. Protection of commercially valuable information is possible through contractual agreement between parties. Breach of contractual terms of protection can be remedied in legislative proceedings under either the civil or criminal code, depending on the severity of the damage caused.

Semiconductor Chip Layout Design: There is no separate legislation protecting semiconductor chip layout design, although Egypt signed the Washington Semiconductor Convention.

U.S. Support for Intellectual Property Rights Protection: The U.S. provides significant support for Egyptian efforts to increase intellectual property rights (IPR) protection, primarily through USAID programs. These programs include the Strengthening Intellectual Property Rights in Egypt (SIPRE) project. SIPRE furnishes technical support for such efforts as modernizing Egypt's patent office and improving the automation of its trademark system. In a USAID-funded program, the U.S. Commerce Department's Commercial Law Development Program (CLDP) contributes to the development of the Egyptian legal environment for business and investment by conducting conferences in areas such as IPR enforcement and customs administration.

A8. Transparency of the Regulatory System

The streamlining of Egyptian investment procedures during recent years, as outlined in other sections of this report, represents a constructive step towards improving Egypt's business environment. However, there is still room for improvement. Significant obstacles continue to hinder private sector investment in Egypt. They include the often arbitrary imposition of bureaucratic impediments and the length of time that must be spent resolving them. Import clearance remains difficult, as several ministries have overlapping regulatory authority. In addition, quality control is a major issue for importers. Enforcement of health and safety regulations is uneven and enforcement is complicated by a multiplicity of laws, agencies, and opinions. For example, at least four ministries regulate the operation of restaurants. Egypt's accounting system is not consistent with international norms.

In May 1998, the government passed Law 89 of 1998 as an amendment to the Tenders and Bidding Law 9 of 1983 to improve equality and transparency in government procurement. Key provisions of the new law include: a prohibition on transforming a bid into a tender (a main defect of Law 9); more transparency in the criteria for bid acceptance and rejection; equality among bidders, contractors and government agencies; more weight given to the technical aspects of a tender or bid; protection of contractor rights; reduction of insurance fees; immediate return of deposits once the government announces bid or tender results; and the establishment of a Central Office for Complaint Resolution in the Ministry of Finance.

A9: Efficiency of Capital Markets and Portfolio Investment

Egypt has made considerable progress in modernizing its capital markets since the passage of Law 95 of 1992. The Privatization Program, particularly between 1995 and 1997, was a major spur for development of the capital markets and foreign investor interest. The capital markets sector, as of March 1999, consists of 26 mutual funds (19 managed and traded in Egypt and 7 offshore), 24 portfolio investment management companies, 20 underwriters, 9 venture capital firms, 140 brokerage firms and one central depository for clearing and settlement. As of April 1999, the market capitalization of the Cairo and Alexandria Stock Exchange (CASE) was approximately $26.9 billion with 925 companies listed. Trading volume in 1998 was 571 million shares. Trading value for 1998 was $6.7 billion, of which $5.4 billion was in listed securities.

In March 1999, Moody's Investors Service assigned a Baa1 rating to the domestic currency bonds issued by the Government of Egypt. In 1997, Standard and Poor's gave Egypt an investment grade rating of BBB-. European and U.S. mutual funds now include Egyptian stocks, and 54 local issues are included in the International Finance Corporation's general index. Six Egyptian companies are traded on the London Stock Exchange. As of April 1999, Global Depository Receipts (GDRs) had been issued by Commercial International Bank, Suez Cement, MIBank, Ahram Beverage, Paints and Chemicals and EFG-Hermes. The GDRs are traded in London.

The government continues to introduce measures to bring the market closer to international standards. Companies listed on the CASE are required to apply international accounting and disclosure standards. Stocks are deleted from the exchange if not traded for six months. Settlement of transactions now takes three days, a significant improvement over the eleven days needed two years ago. USAID/Cairo is working with Egyptian government authorities and the CASE in an ambitious four-year $32 million technical assistance program for the development of the Egyptian capital market. The project is working in four major areas: legal and regulatory reform, automation, institutional development, and debt market development.

The development of markets for government and corporate bonds lags behind the growth of the equity market. Since 1994 there have been 32 issues of corporate and 8 issues of medium-term government bonds. Treasury bonds are traded on the stock market. The GOE is currently exploring strategies for developing a secondary market for government securities.

A10. Political Violence

Since the mid-1990®s, Egyptian extremists groups seeking to destabilize the government have attacked targets in Egypt, including Egyptian law enforcement personnel, judicial officials, and foreign tourists. Most of these attacks have occurred in the Nile Valley Governorates of Minya, Assiut, Sohag, and Qena. Egyptian security and law enforcement officials increased their counter-terrorism activities and security presence during 1998, and there were fewer extremist attacks than in previous years. In 1997, extremist attacks on foreigners took place in Luxor in Upper Egypt and in Cairo. There were no attacks on foreign tourists in Egypt in 1998. Because the extremists have been more active in the Nile Valley Governorates of Minya, Assiut, Sohag and Qena (North of Qena City), these areas should be considered a greater risk. Prior to travel to these governorates, U.S. citizens are urged to seek advice from the Consular Section of the U.S. Embassy, licensed tour operators, and/or the tourist police authorities responsible for those areas. The U.S. Embassy periodically receives information concerning extremists intentions to target tourists and American interests in Egypt, including U.S. Government buildings. In light of this information, Americans are urged to be vigilant and exercise good security practices while in Egypt.

A11: Corruption

Corruption in Egypt is considered a criminal act. Two agencies under the authority of the Cabinet of Ministers--the Administrative Control Authority (ACA) and the Illicit Gain Office (IGO)--oversee enforcement of corruption laws in the public sector. In the private sector, there are two types of corruption cases. Commercial disputes are subject to international commercial law and Law 27 of 1994. Civil cases are adjudicated by the district attorney's office and the civil courts. The ACA and IGO may intervene when corruption occurs in the private sector if public money and the public interest are involved. Egypt is not a signatory of the OECD Convention on Combating Bribery. While U.S. firms occasionally report corruption by lower-level government officials, they do not identify corruption as an obstacle to foreign investment.

B. Bilateral Investment Agreements & Regional Cooperation

In 1992 the U.S. and Egypt implemented a Bilateral Investment Treaty. The treaty provides for fair, equitable, and non-discriminatory treatment for investors of both nations. The treaty includes provisions for international legal standards on expropriation and compensation; free financial transfers; and procedures for the settlement of investment disputes, including international arbitration.

Egypt has signed investment agreements with the U.S., Germany, the United Kingdom, Sweden, Switzerland, Japan, the Netherlands, Belgium, Luxembourg, France, Italy, Greece, Finland, Romania, Sudan, Morocco, Thailand, China, Tunisia, Armenia, Libya, and Singapore.

In addition to investment agreements per se, Egypt is a signatory to a wide variety of agreements covering trade issues. On July 1, 1999, Egypt and U.S. signed the Trade and Investment Framework Agreement (TIFA). The TIFA is a step toward creating freer trade and increased investment flows between the U.S. and Egypt.

Egypt has been in negotiations with the European Union on an association agreement under the Mediterranean initiative since 1995.

In January 1998, Egypt began implementing agreements reached with Arab League members in connection with the Arab Common Market treaty of the 1960's. These agreements call for phasing out existing tariffs over a 10-year period.

Egypt joined the Common Market for Eastern and Southern Africa (COMESA) in June 1998. According to this agreement, tariffs among member countries will be phased out by the year 2000.

Further information on Egypt's investment and trade regimes can be found in the National Trade Estimate Report on Foreign Trade Barriers produced by the U.S. Trade Representative. In addition, the World Trade Organization (WTO) conducted a Trade Policy Review of Egypt on June 24-25, 1999. A copy of this report prepared by the WTO secretariat is available from the WTO.

C. OPIC, TDA, Ex-Im, and Other Investment Programs

The U.S. Overseas Private Investment Corporation (OPIC), the U.S. Export-Import Bank (Ex-Im), and the U.S. Trade and Development Agency are focusing increased attention on supporting U.S. trade and investment in Egypt. High level delegations from all three agencies visited Egypt in 1999.

In July 1999, Egypt and OPIC signed an updated investment agreement to facilitate the ability of the agency to provide political risk insurance for U.S. private investment as well as for bid, performance, advance payment, and customs bonds and guarantees issued on behalf of U.S. suppliers and contractors in Egypt. To date, 25 U.S. investment projects in Egypt have been covered by OPIC insurance. With respect to the amount of local currency the U.S. mission in Egypt could absorb in the case of an inconvertibility claim, records show that the U.S. Embassy and U.S. institutions in Egypt, including USAID, purchase in excess of $200 million annually. If OPIC were to make available local currency to the U.S. Embassy or other U.S. institutions in Egypt in the case of an incovertibility claim, it would be exchanged at commercial rates offered through local banks. The prospect of devaluation in the near term appears remote given the Government of Egypt's repeated insistence that it will not devalue the Egyptian pound.

Since its inception in 1981, the U.S. Trade and Development Agency (TDA) has provided $35 million in funding for feasibility studies, orientation visits, training grants, and conferences that support economic needs and priorities in North Africa and the Middle East. In March 1999, TDA provided a $750,000 grant to the Egyptian Arab Trading Company for a feasibility study on the construction of the Suez Petrochemical Complex. In April 1998, TDA awarded a $400,000 grant to the Egyptian Civil Aviation Authority to fund a feasibility study for the complete technical, financial, and environmental review of the conversion and expansion of the Borg El Arab airport west of Alexandria.

The Export-Import Bank of the United States is an independent U.S. government agency that finances the overseas sales of U.S. goods and services. Since inception in 1934, Ex-Im Bank has provided financing for transactions totaling more than $300 billion. Ex-Im's total exposure in Egypt is currently $45.9 million.

USAID's Commodity Import Program (CIP) is a substantial source of support for U.S. imports. For more information on CIP, please see Chapter IV)

Egypt is a member of the World Bank's Multilateral Investment Guarantee Agency (MIGA).

D. Labor

Egypt's labor force has grown at an annual rate of around 2.7% in recent years, adding more than 550,000 new entrants into the labor market each year. According to foreign investors, certain aspects of the current labor law are significant business impediments, particularly the difficulty of dismissing employees. The government's labor policy is widely viewed as outdated: workers are not legally allowed to strike; workers remain unfamiliar with the dynamics of market-based economies; and qualified specialists are in short supply. In 1996, the government drafted a new labor law, but the law still awaits approval from the People's Assembly.

The abundance of labor has led to low prevailing wages and the use of labor-intensive technologies. Foreign companies frequently pay higher wages and attract workers with higher than average skills. Hundreds of thousands of Egyptians seek employment abroad on both temporary and permanent bases.

Workers may join trade unions but are not required to do so. A local union, or workers' committee, may be formed if 50 employees express a desire to organize. Union members make up about 27% of the labor force and are mostly employed by state-owned enterprises.

There are 23 general trade unions and about 1,855 local committees (local trade unions). All are required to belong to the Egyptian Trade Union Federation (ETUF), the sole legally recognized labor federation. The International Labor Organization's Committee of Experts repeatedly has emphasized that a law requiring all trade unions to belong to a single federation infringes on the freedom of association, but the government has not changed the law. The ETUF speaks vigorously for worker concerns but public confrontations between the ETUF and the government are rare. Disputes are more often resolved by consensus behind closed doors.

Labor laws do not adequately provide statutory authorization for the rights to strike and to engage in collective bargaining. Even though the right to strike is not provided, strikes do occur. The government considers strikes a form of public disturbance and hence illegal.

Unions may negotiate work contracts with public sector enterprises if the latter agree to such negotiations, but unions otherwise lack collective bargaining power in the state sector. Under current circumstances, collective bargaining does not exist in any meaningful sense because the government sets wages, benefits, and job classifications by law. Firms in the private sector generally do not adhere to such government- mandated standards. Although they are required to observe some government practices, such as the minimum wage, social security insurance, and official holidays, they often do not adhere to government practice in non-binding matters, including award of the annual Labor Day bonus.

Labor law and practice are the same in the free zones as in the rest of the country. Article 13 of the Constitution prohibits forced labor. However, the Criminal Code authorizes sentences of hard labor for some crimes. Although the law does not specifically prohibit forced and bonded labor by children, such practices are not known to occur.

According to the Child Law approved in 1996, the minimum age for employment is 14 in non-agricultural work. Provincial governors, with the approval of the Minister of Education, can authorize seasonal work for children between the ages of 12 and 14, provided that duties are not hazardous and do not interfere with schooling. Pre-employment training for children under the age of 12 is prohibited. It is prohibited for children to work for more than 6 hours a day, including one or more breaks totaling at least 1 hour. Children are not to work overtime, on their weekly day off, between 8 p.m. and 7 a.m., or more than 4 hours continuously. Education is compulsory for the first 9 academic years (typically until the age of 15). Despite legislation to end it, child labor persists in Egypt. Statistical data is uncertain, but the phenomenon is widespread, especially in rural areas. Poverty is a major factor, with key elements being the educational and occupational level of the parents. The government and NGO's are working to alleviate some aspects, but stubborn and persistent poverty is likely to continue to abet the problem.

For government and public-sector employees, the minimum wage is approximately $28 (about 95 Egyptian pounds) a month for a 6-day, 42-hour workweek. Base pay is supplemented by a complex system of fringe benefits and bonuses that may double or triple a worker's take-home pay. The average worker and family could not survive on a worker's base pay at the minimum wage rate. The minimum wage is also legally binding on the private sector, and larger private companies generally observe the requirement and pay bonuses as well. Smaller firms do not always pay the minimum wage or bonuses.

The Ministry of Labor sets worker health and safety standards, which also apply in the export processing zones, but enforcement and inspection are uneven. The law prohibits employers from maintaining hazardous working conditions, and workers have the right to remove themselves from hazardous conditions without risking loss of employment.

E. Foreign Trade Zones and Ports

There are eight active free zones: Nasr City (near Cairo Airport), Alexandria, Damietta, Ismailia, Suez, Port Said, Safaga, and Sohag. New extensions are being added to Port Said and Damietta and new zones are planned in North Sinai and the Red Sea. Free zones are established by a decree by the Council of Ministers. They are subject to Investment Law 8 and are open to investment in any sector. Companies producing largely for export (normally 80% or more of total production) may be established in the free zones and operate in foreign currency.

Companies operating in free zones are exempt from customs duties, sales taxes or taxes and fees on capital assets and intermediate goods. However, warehouse companies are subject to an annual fee of 1% on the imported product's value, and production and assembly profits are subject to an annual fee of 1% on the exported product's value.

Concession agreements in such areas as petroleum, natural gas and mineral exploration and extraction, although not explicitly covered by Investment Law 8, receive many of the privileges of free zone ventures. Concession agreements must be negotiated separately with the GOE and are subject to legislative approval.

F. Foreign Direct Investment Statistics

Measurements of foreign direct investment (FDI) in Egypt vary according to the source and the definitions employed to calculate the figure. The U.S. Department of Commerce calculates the stock of U.S. FDI as of March 1999 at around $2 billion.

Official Egyptian statistics indicate that the United States topped the list of investing countries in 1997/98. Egypt's General Authority for Investment and Free Zones (GAFI) calculated the total stock of foreign investment at the end of December 1998 by all foreign nationalities (non-Arab) in 1,254 projects at around $3.4 billion. GAFI set the stock of U.S. FDI in 204 projects at the end-December 1998 at $543 million, down from $707 million the prior year. GAFI's figures are less inclusive than those of the U.S. Commerce Department. GAFI tracks only U.S. investment in Egyptian companies formed under Law 203; it does not include U.S. investment in the petroleum sector, the chief recipient of U.S. FDI in Egypt. According to company data, U.S. direct investment in the oil and gas is in excess of $7 billion. BP-Amoco is the largest foreign investor in Egypt. Other U.S. oil exploration and production companies include Mobil, Caltex, Arco, Esso, Texaco, Marathon, Apache and Phoenix. Foreign petroleum firms such as AGIP, Shell, Repsol and British Gas are also significant players.

In addition to their dominant role in the energy sector, U.S. firms are active in banking and in a wide range of manufacturing industries, producing goods for the domestic and export markets. Examples of U.S. investors include American Express, Citibank, Coca Cola, Ralston Purina, Eveready, General Motors, Johnson and Johnson, Procter and Gamble, Pfizer, H.J. Heinz, Gillette, American Standard, Bristol-Myers Squibb, PepsiCo, Pioneer, and Xerox.