Anti-dumping duties may worsen Egypt's economy

Experts examine the possible motivations and consequences behind anti-dumping duties imposed on imported steel by the Egyptian Ministry of Trade and Industry.

al-monitor Construction laborers work on a bridge to link the Cairo-Banha highway at the agricultural road that leads to the capital city of Cairo, Egypt, Oct. 13, 2016.  Photo by REUTERS/Amr Abdallah Dalsh.

Aug 22, 2017

CAIRO — Experts agree on the need to support national industry, especially since the Egyptian government has made it easier for foreign companies to import cheap steel to Egypt. The government's imposition of anti-dumping tariffs on importers of steel is costing Egyptians huge sums of money as the economy suffers.

The Egyptian government’s economic reform program and its November decision to float the Egyptian pound gave rise to a growing inflation rate that reached almost 33% this month — the highest in decades. Many Egyptians are questioning the usefulness of imposing anti-dumping duties on imported steel at the risk of suffering an unprecedented rise in steel prices.

On Aug. 15, the price of rebar in Egyptian factories ranged between 11,500 Egyptian pounds (about $647) and 12,000 pounds (about $675) per ton. The price has been rising gradually since June, when the Ministry of Trade and Industry imposed anti-dumping duties on rebar imported from Turkey, China and Ukraine for four months.

Anti-dumping duties are paid to the state for allowing goods to be imported when they are already manufactured locally and when lower-priced imports would harm the national industry.

Before the government imposed these duties, a ton of rebar cost from 9,400 pounds (about $530) to 9,900 pounds (about $558); thus, the cost has risen by around 22% in just two months since the decision.

The anti-dumping duties reached 17% of the customs cost for Chinese rebar, 10% to 19% for Turkish rebar and 15% to 27% for Ukrainian rebar.

On April 22, Hussein Abu Gad, a member of parliament's Human Rights Committee, submitted an urgent request to Egypt’s parliament to ban imported rebar steel from Turkey and cancel the bilateral Free Trade Agreement (FTA).

Abu Gad is affiliated with the Nation's Future Party, whose main financier is Ahmed Abu Hashima, the chairman and owner of Egyptian Steel Group, one of the largest rebar factories in Egypt.

In a June 1 press statement, Egyptian Minister of Industry Tariq Kabil rejected the requests, saying, “The FTA with Turkey is good for Egypt."

This is why Kabil's decision to impose anti-dumping duties seemed surprising, especially since it contradicts Article 2 of the FTA with Turkey, which specifies that the FTA aims “to eliminate difficulties and restrictions on trade in goods.”

A source at the Ministry of Trade and Industry told Al-Monitor on condition of anonymity, “Egypt is still bound by the FTA with Turkey, and anti-dumping duties are only imposed for a temporary period. Floating the exchange rate has troubled steel factories because of the high cost of importing the raw materials needed for the manufacturing process inside Egypt. These factories need to tame foreign competition until their financial position stabilizes and they become able to compete with the imported product again.”

Asked whether the Trade Ministry had been subjected to any pressure from owners of steel factories, he replied, “We received claims and discussed them, but we were not under any pressure. We do not put the interests of businessmen above those of citizens.”

The source further explained, "The citizens affected by high steel prices must be aware that importers are getting cheaper prices from Turkey, China and Ukraine because the manufacturers in these countries know that Egypt is also an important steel-manufacturing country. If the local industry collapses due to the impact of imported products, the foreign factories supplying steel will raise their prices when exporting to Egypt. The Egyptian domestic steel industry is the guarantee for a continued decline in the price of imported steel.”

The source said political differences with Turkey played no role in the decision to impose anti-dumping duties, nor do they affect the countries' economic relationship.

"Indeed, Egypt has declared its will to accept billions of dollars of Turkish investments in January, and Egyptian exports to Turkey have been soaring. The anti-dumping duty does not target Turkey alone but also includes Chinese and Ukrainian steel," the source said.

The rise in steel prices does not affect citizens directly; it is rather reflected in higher real estate prices, as steel is one of the basic construction materials. Ahmed al-Zainy, head of the Building Materials Division at the Federation of Egyptian Chambers of Commerce, told Al-Monitor, “Steel prices will lead to higher real estate prices by 25% to 50%. The decision to impose anti-dumping duties has yet to produce its desired objectives. It did not promote and support the national industry. The price increase of a ton of steel from 4,700 Egyptian pounds to 12,000 pounds will trouble numerous real estate and construction projects and lead to a stagnation of domestic steel demand.”

Mohamed Zakaria Mohieddin, deputy head of parliament's Industry Committee, told Al-Monitor, “The rise in [domestic] steel prices is natural in light of the high prices of imported raw materials as a result of the decision to float the exchange rate. The citizen must bear the burdens of the current difficult economic stage. At least now steel factories are not obliged to close down and sack thousands of workers; in that case, the collapse of factories would force Egypt to import steel at any price.”

Mohieddin added, “The low selling price by some countries, such as Turkey in the Egyptian market, is illogical. Turkey wants to take down the Egyptian steel industry and monopolize steel supply in Egypt.”

Economist Rashad Abdo, head of the Egyptian Forum for Economic and Strategic Studies, denied any connection between the rise in steel prices and the anti-dumping duties. He told Al-Monitor, “The steel industry is controlled by a network of monopolists. The Egyptian government should have imposed supervision over the markets in tandem with the decision to impose the anti-dumping duties. However, these duties are important to support the domestic industry in the absence of any anti-monopoly controls.”

In turn, Abdel Nasser Mohamed, a professor of economics and public finance at Mansoura University, told Al-Monitor, “The government must prove its good intention by canceling the anti-dumping duties, because this only serves the interest of a group of monopolists.”

Only time will tell if the state’s decision was a political move against Turkey or whether it was aimed at controlling monopoly or promoting the national industry. The outcome of this decision will also show whether the rise in steel prices was just a temporary measure, until steel factories' situation stabilized, or was aimed at controlling the market and perpetuating monopolistic practices.

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