Will Lifting Tariffs on European Cars Affect Prices?



Thu, 27 Dec 2018 - 09:32 GMT


Thu, 27 Dec 2018 - 09:32 GMT

Mercedes-Benz A-class cars are displayed in a dealership of German car manufacturer Daimler in Paris, July 30, 2013. REUTERS/Christian Hartmann

Mercedes-Benz A-class cars are displayed in a dealership of German car manufacturer Daimler in Paris, July 30, 2013. REUTERS/Christian Hartmann

CAIRO - 27 December 2018: Days before customs tariffs are lifted off European cars entering the Egyptian market, debates continue to rage about the effect this move will have on vehicle prices. With revenues of customs on cars in the ports of Alexandria, Suez and Port Said reaching about LE 1.2 billion during June, officials and experts expect that the agreement with the European Union will have no impact on the prices of European vehicles in Egypt, noting that customs are not the only factor playing a part in determining vehicle prices.

At press time Minister of Finance Mohamed Mait announced a rise in customs dollar rates for nonessential and luxury commodities to LE 17.9737, up from LE 16 in November and prior months. Automotives—along with mobile phones, computers, furniture and cigarettes, among other items—fall in this “nonessential and luxury commodities” category which means even if tariffs are lifted prices will stay the same or even edge up. In fact, it has been revealed, prices of 2000cc cars will be hiked by 5 to 10 percent,1600cc cars from the European Union will go up 2 percent, and those not subject to the agreement will rise 4 percent.

FILE PHOTO: Volkswagen Polo models are parked outside the company's plant in Pamplona, Spain October 30, 2018. REUTERS/Vincent West

Revisiting the GATT Agreement

The General Agreement on Tariffs and Trade (GATT) was signed between a number of countries to enhance international trade by reducing trade barriers such as tariffs or quotas. In 1995, Egypt began negotiations with the European Union for a partnership agreement. The agreement was initialed on January 26, 2001, in preparation for the final signing of the agreement which took place on June 25. After parliaments of the member states ratified the agreement, it entered into force in mid-2004.

The agreement stipulates establishing a free trade area during a transitional period of 12 years from the date of the convention entering into force. It also liberalizes the Egyptian imports of industrial goods with European origins for up to 16 years. The Egyptian-European Trade Agreement covered industrial goods, agricultural commodities and manufactured agricultural goods. Cars came in the fourth list of industrial goods imported from the European Union.

Regarding cars, Egypt started implementing the trade cooperation agreement with the European Union in 2010, so European car customs have begun to decline gradually. Egypt used the right to postpone the reduction twice in previous years, meaning that by the start of 2019, customs must be reduced to hit 0 percent for all cars of all engine capacities entering from the EU. Among these are Mercedes, BMW, Audi, Volvo, Peugeot, Renault, French-origin Citroen, Fiat and Siat.

What 0% Customs Means

In a recent report on the expected lifting of customs on European cars, its implications and dimensions and ways to maximize Egyptian gains, the Center for Political and Strategic Studies of the Nation’s Future Party pointed to the effect of raising customs duties on the car market in Egypt, as the market is in an anticipation mood. The report noted that the market was waiting to see the price of European cars come down customs duties amount to 10 percent and buyers were looking forward to seeing the equivalent of a 4 percent reduction of the total value of European vehicles.

According to the report, the opinions of ob- servers differed on whether tariff reduction could affect car prices, whether of European, Asian or American origin. But the vast majority of the opinions of many experts and specialists in the car market, reduces the significant impact of this procedure on the car market in Egypt,due to the fact that European cars do not acquire a large share of Egypt’s auto market, import duties, and other factors that control car prices.

A traffic warden checks cars parked on a street in Vienna, Austria May 31, 2017. REUTERS/Heinz-Peter Bader

Member of the Board of Directors of the Egyptian Travel Agencies Association and member of the Committee of Transport and Aviation at the association Reem Fawzy, agreed with the report, saying that the prices of cars manufactured within the European Union, which will be exempt from customs starting January 1, 2019, will not lead to lower prices for cars for the consumer. Speaking at a recent press conference, Fawzy argued that the prices of most cars manufactured entirely in Europe are high and will not fall significantly be- cause of high tax and development fees, noting that the majority of cars on the Egyptian market are currently manufactured in Southeast Asia.

Car expert Hussein Mostafa also believes that the impact of customs duties on European cars will be very limited. He maintains that because the agreement has been implemented since 2008, 10 percent of customs is reduced annually and it has already reached 0 percent for cars which are less than 1300cc.

Despite this, the consumer has not felt any positive impact on prices, and has not seen any significant decline, Mostafa added. “The reason why consumers do not feel any advantages and differences in prices is because the reduction in customs is a reduction in one component of the cost of the car, while other elements of the cost increase, including the rise of the dollar against the pound by about 100 percent, which raised the price of the car in large proportions, in addition to the rise of European cars with modern models in their country,” Mostafa clarified, adding that the prices of used cars are also not likely to come down since the impact on new car prices will be limited.

Professor of economics at Benha University Mohamed El-Nagar maintained that though by the beginning of 2019 there will be no customs on European cars, consumers will almost certainly be slapped with other fees. “We may find a tax under any name, which means that the citizen buys the car at a more expensive than anyone in the world,” El-Nagar complained, noting that Egyptians buy Fiat cars at the price of Mercedes abroad.

Head of the Customs Authority Al-Sayed Negm announced earlier that there will not be a significant impact on the prices of cars in the Egyptian market, with the reduction of the last 10 percent in the customs of European cars, noting that 14 percent VAT is applied to cars imported from the European Union.

He stressed that Egypt’s reliance on protecting the Egyptian product, attracting foreign investments to the Egyptian market, increasing Egyptian factories and hiking international trade are factors that contribute to the rise in public taxes as a result of increased economic activity and growing employment opportunities.

In a press statement, Deputy Head of the Automotive Division at the Chamber of Commerce Ashraf Sharabas said that the prices of Europe- an cars will not decline even after the entry of customs reductions phase of full exemption, explaining that car prices are not only affected by customs cuts only, and that there are also more important factors that affect the prices, most notably the currency rate.

GB Autos Chairman and CEO Raouf Ghabbour recently told Bloomberg that the company sees no impact on its operations as a result of a decision to revoke the duty on car imports from Europe that’s set to take effect in January. He also add that his company could consider securing the distribution rights of a European brand.

GB Auto - Reurters

Factors Determining the Final Selling Price of Cars

There are several factors that determine the final sale price of cars in Egypt after lifting customs tariffs on European cars, including taxes and fees, such as:

Dollar rate: The price of imported cars depends on the exchange rate of the US dollar against the Egyptian pound, as the dollar is the currency of the international settlement of all external obligations of countries. Since the flotation of the Egyptian currency in November 2016, the exchange rate is around the average of LE 17.78 for buying and LE 17.99 for selling.

Schedule taxes: A tax imposed in special rates or at specified values on the sale or importation of local or imported goods and services provided in the schedules accompanying the VAT Act. This tax is levied on the sale, performance or importation of the goods and services provided in the schedules of the law and up to 24 percent.

Development fees: The latest amendments to Law No. 147 of 1984 concerning the imposition of a fee for the development of the state’s financial resources, including imported cars, at the expense of the value of the fee on imported cars on the basis of the value of the car, in addition to the customs tax and value added tax and other taxes and fees.

Agents’ profit margins: This margin has no rules or constants to govern it because it is subject to supply and demand in the local market, and is thus a relative factor determined by the agent alone.



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