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Law on Giving Preference to Egyptia

Law on Giving Preference to Egyptian Products in Government Contracts
In line with the Government’s policy aimed at stimulating the economy, Presidential Decree No. 5 of 2015 was issued on the 17th of January enacting a law that gives preference to Egyptian products in government contracts (the "Law").[1]
Scope of the Law
The scope of this Law covers two main types of contracts: 1) purchase contracts, and 2) contracts for projects. In order for the Law to apply, both contract types must be entered into by a State administrative body or unit (including ministries, agencies, and units with independent budgets) or by local administrative bodies, or general authorities whether economic or services-based in nature. For some entities, the Law will only apply insofar as project contracts are concerned, which means that its mandate will not be extended to contracts for products. Such entities include:
  • companies owned entirely by the State or by public juridical persons;
  • public sector companies;
  • public works companies; and
  • any company in which any of the above hold a controlling stake.
Interestingly, the Law explicitly states the type of agreements it will not apply to, which are:
  • Contracts concluded by the Ministries of Defense, Military Production, and Interior, and by the Egyptian General Intelligence;
  • Contracts made by relevant entities which, for reasons of national security, must be kept secret; and
  • Public-Private Partnership (PPP) contracts and special consulting contracts entered into by administrative bodies for infrastructure projects, public services, and services offered in accordance with Law No 67/2010 (Law Regulating Partnership with the Private Sector in Infrastructure Projects, Services and Public Utilities).
General Obligations
The Law provides that above entities entering into contracts for products or projects must guarantee that there is an “Egyptian component” that is equivalent to at least 40% of the price of the relevant product or project. The entities may only be exempted from this quota by a decision from the Prime Minister made on the basis of recommendations by the Ministers of Industry, Finance and Planning. The Prime Minister also maintains the right to increase or decrease the quota, by a rate of 10%. The procedures for doing so will be delineated in the Executive Regulations, which should be issued within three months of this Law’s entry into force, which in itself is set at 18th of March 2015. Certificates ascertaining whether a product is locally-made are provided by the Egyptian Industries Union, following certification by the Egyptian Authority for Industrial Development. The cost of obtaining certification will be detailed in the Executive Regulations, and will not exceed EGP 2000. Importantly, the Law obliges relevant entities to not include provisions related to technical product specification, evaluation, or other matters that would have the effect of discriminating against Egyptian products. The Law also obliges relevant entities to not discriminate against Egyptian manufacturers when it comes to payment procedures. To this effect, the entities subject to the Law must – via the Government Procurement Portal website – announce the following:
  • The way in which they will enter into contractual agreements and the reasons for selecting this particular process;
  • The terms and conditions of the relevant contract and the technical and financial rules for the evaluation process;
  • The result of the procurement auction and the reasons for both selecting and rejecting a bid. Reasons must be given for the rejection of Egyptian products;
  • A list of contractors, suppliers, experts, and consultants listed with the relevant administrative authority, and a list of parties the authority is prohibited from working with.
Purchasing Industrial Products The Law stipulates that certain public entities (namely ministries, agencies, general authorities and local administrative authorities) cannot enter into contracts for the purchase of industrial materials that do not meet the minimum “Egyptian component” requirements. As mentioned above, for a product to meet the requirements, at least 40% of its value must be attributed to Egyptian production. However, the Law provides several exemptions to when those entities can enter into such contracts, even if they do not meet the specified requirements. This may be done in cases where the Egyptian product in question does not meet the approved standard specifications, where it is not available in sufficient quantity, where the foreign product is cheaper by more than 15%, or where – as stated above – the Prime Minister makes a special exemption for purposes of public good.
A New Committee and its Role
The Law also stipulates the establishment of a new body, the Committee for the Preference of Egyptian Industrial Products, which will be part of the Office of the Cabinet of Ministers. The Committee’s aim is to promote access to competitive and preferential advantages to Egyptian-made products and products that meet the “Egyptian component” requirements of the Law. The Committee will include a variety of officials including a member of the State Council, the Chairman of the Egyptian Authority for Industrial Development, the Chairman of the Egyptian Industries Union, and other representatives from the relevant stakeholders. The Committee is charged with the oversight of the entities subject to the Law and the execution of their commitments. As such the Committee will have various powers related but not limited to creating a database of relevant contracts, setting rules, disclosures of information, receiving complaints, notification of violations, communication with the relevant public entities, evaluation, and reporting on a quarterly basis to the Prime Minister. In the event that a contract for a product or a project will exceed EGP 10 million, the Committee must be informed 15 days prior to announcing such contract. The Committee may inform the relevant public entity of any comments it may have, and may order the cancellation of the relevant contract if violations of this Local Preference Law still exist. While the Committee undertakes its investigations, relevant public entities are required to cooperate by disclosing all relevant material, including quarterly reports, to the Committee. The Egyptian Authority for Industrial Development will be responsible for creating a database of all the relevant information, in order to increase transparency and facilitate economic activity. Penalties With regards to penalties for non-compliance with the Committee, fines ranging from EGP 5,000 to EGP 100,000 can be levied against any individual refusing to disclose requested information. Similar fines will be levied against any individual who fails to respect the obligation to announce relevant information on the Government Procurement Portal website. Finally, a penalty of not less than EGP 50,000 and not more than 10% of the total value of the contract will be imposed against any individual providing incorrect information or documentation to the Committee. However, in cases of negligence this penalty will be decreased to range from EGP 5,000 to EGP 100,000.
Consistency with WTO Obligations
The preamble of the Law makes reference to Presidential Decree No. 72 of 1995 by which Egypt’s accession to the World Trade Organization ("WTO") was officially ratified. The WTO, the successor of the General Agreement on Tariffs and Trade ("GATT"), originally agreed to in 1947, aims to promote and facilitate international trade, and provides a set of principles whereby these goals can be achieved. As a full member of the WTO and a signatory of GATT and other related treaties, Egypt has accepted to respect and abide by these rules, two of which are especially relevant in light of January’s Presidential Decree-Law. While on the face of it, the new law may be criticized as conflicting with Egypt’s international obligations under the WTO, a closer look at the main WTO agreements make it clear that no such conflict exists. A core principle of the WTO’s international trade regime is that of non-discrimination. This principle is comprised of two main facets: the most favored nation rule and the national treatment rule. The most favored nation rule states that WTO members cannot favor other WTO nations over one another. Instead, when trading with each other, WTO nations must consider each trading nation as the ‘most favored nation’, offering it the same treatment as it would any other. The national treatment rule states that domestic products and imported products must not be treated differently. It ensures that domestic taxation regimes and governmental interference do not result in discrimination against non-local products. However, there is a proviso to the rule: it applies only once the products are available on the market; customs tariffs do not fall under its scope, meaning that discrimination can occur during importation.
Government Procurement Exception and Customary International Law
While the principles of most favored nation and national treatment are cornerstones of the WTO and are essential in facilitating international trade through the prohibition of discrimination by individual States, they are not absolute. Government procurement is afforded special status and is explicitly exempted in both the GATT (Article III: 8a) and the General Agreement on Trade in Services (GATS) (Article XIII:1). In particular, the GATT exemption reads as follows: “The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes”. The WTO has addressed the matter of government contracts in its Agreement on Government Procurement (GPA), first negotiated in 1981; Egypt is not a signatory member. The GPA aims to increase openness, transparency, and non-discrimination in government procurement contracts, bids, and tenders, rather than allow for the promotion of national products. The GPA affirms the WTO’s position on discrimination, while at the same time offering an international agreement that would allow government procurement to be regulated under international law. As Egypt has not signed the optional treaty, its provisions are non-applicable. As well as the provisions of the WTO treaties, customary international law, which is based on State practice, provides numerous examples of policies promoting domestic products in government procurement contracts. Notably, the United States’ Buy American Act promotes American products in government contracts, and has been reaffirmed and superseded by the Trade Agreements Act of 1979. The European Union’s Common Agriculture Policy is another notable example.
Public Tender Law No. 89 of 1998
Egypt’s position on trying to boost local production is not novel. Previous legislative measures have tackled the subject. Public Tender Law No 89 of 1998 provides an advantage to Egyptian businesses; domestic producers/manufacturers will be given priority when it comes to the tender process if the Egyptian bid does not exceed the lowest foreign bid by greater than 15%. Furthermore, Article 9 of the Public Tender Law stipulates that the relevant administrative body will determine the share of local component required for the execution of a project.
Conclusion
The new Law was enacted with an overarching aim: to boost the Egyptian local industry by increasing the utilization of Egyptian products in Government contracts. The Law stipulates several new measures, most notably the new Committee that will be established to will facilitate the process of promoting national products. With regards to Egypt’s international commitments, the Law does not appear to violate Egypt’s commitments under the WTO. On the surface, the WTO’s core principle of non-discrimination and its policy of national treatment appear difficult to reconcile with the new Law. However, because Law No 05/2015 deals with government procurement, it benefits from the exceptions found in the GATT and the GATS.   [1] Presidential Decree-Law No. 5/2015 on giving preference to Egyptian products in government contracts, Official Gazette, Issue No. 3 (bis), 17 January 2015.
In line with the Government’s policy aimed at stimulating the economy, Presidential Decree No. 5 of 2015 was issued on the 17th of January enacting a law that gives preference to Egyptian products in government contracts (the "Law").[1]
Scope of the Law
The scope of this Law covers two main types of contracts: 1) purchase contracts, and 2) contracts for projects. In order for the Law to apply, both contract types must be entered into by a State administrative body or unit (including ministries, agencies, and units with independent budgets) or by local administrative bodies, or general authorities whether economic or services-based in nature. For some entities, the Law will only apply insofar as project contracts are concerned, which means that its mandate will not be extended to contracts for products. Such entities include:
  • companies owned entirely by the State or by public juridical persons;
  • public sector companies;
  • public works companies; and
  • any company in which any of the above hold a controlling stake.
Interestingly, the Law explicitly states the type of agreements it will not apply to, which are:
  • Contracts concluded by the Ministries of Defense, Military Production, and Interior, and by the Egyptian General Intelligence;
  • Contracts made by relevant entities which, for reasons of national security, must be kept secret; and
  • Public-Private Partnership (PPP) contracts and special consulting contracts entered into by administrative bodies for infrastructure projects, public services, and services offered in accordance with Law No 67/2010 (Law Regulating Partnership with the Private Sector in Infrastructure Projects, Services and Public Utilities).
General Obligations
The Law provides that above entities entering into contracts for products or projects must guarantee that there is an “Egyptian component” that is equivalent to at least 40% of the price of the relevant product or project. The entities may only be exempted from this quota by a decision from the Prime Minister made on the basis of recommendations by the Ministers of Industry, Finance and Planning. The Prime Minister also maintains the right to increase or decrease the quota, by a rate of 10%. The procedures for doing so will be delineated in the Executive Regulations, which should be issued within three months of this Law’s entry into force, which in itself is set at 18th of March 2015. Certificates ascertaining whether a product is locally-made are provided by the Egyptian Industries Union, following certification by the Egyptian Authority for Industrial Development. The cost of obtaining certification will be detailed in the Executive Regulations, and will not exceed EGP 2000. Importantly, the Law obliges relevant entities to not include provisions related to technical product specification, evaluation, or other matters that would have the effect of discriminating against Egyptian products. The Law also obliges relevant entities to not discriminate against Egyptian manufacturers when it comes to payment procedures. To this effect, the entities subject to the Law must – via the Government Procurement Portal website – announce the following:
  • The way in which they will enter into contractual agreements and the reasons for selecting this particular process;
  • The terms and conditions of the relevant contract and the technical and financial rules for the evaluation process;
  • The result of the procurement auction and the reasons for both selecting and rejecting a bid. Reasons must be given for the rejection of Egyptian products;
  • A list of contractors, suppliers, experts, and consultants listed with the relevant administrative authority, and a list of parties the authority is prohibited from working with.
Purchasing Industrial Products The Law stipulates that certain public entities (namely ministries, agencies, general authorities and local administrative authorities) cannot enter into contracts for the purchase of industrial materials that do not meet the minimum “Egyptian component” requirements. As mentioned above, for a product to meet the requirements, at least 40% of its value must be attributed to Egyptian production. However, the Law provides several exemptions to when those entities can enter into such contracts, even if they do not meet the specified requirements. This may be done in cases where the Egyptian product in question does not meet the approved standard specifications, where it is not available in sufficient quantity, where the foreign product is cheaper by more than 15%, or where – as stated above – the Prime Minister makes a special exemption for purposes of public good.
A New Committee and its Role
The Law also stipulates the establishment of a new body, the Committee for the Preference of Egyptian Industrial Products, which will be part of the Office of the Cabinet of Ministers. The Committee’s aim is to promote access to competitive and preferential advantages to Egyptian-made products and products that meet the “Egyptian component” requirements of the Law. The Committee will include a variety of officials including a member of the State Council, the Chairman of the Egyptian Authority for Industrial Development, the Chairman of the Egyptian Industries Union, and other representatives from the relevant stakeholders. The Committee is charged with the oversight of the entities subject to the Law and the execution of their commitments. As such the Committee will have various powers related but not limited to creating a database of relevant contracts, setting rules, disclosures of information, receiving complaints, notification of violations, communication with the relevant public entities, evaluation, and reporting on a quarterly basis to the Prime Minister. In the event that a contract for a product or a project will exceed EGP 10 million, the Committee must be informed 15 days prior to announcing such contract. The Committee may inform the relevant public entity of any comments it may have, and may order the cancellation of the relevant contract if violations of this Local Preference Law still exist. While the Committee undertakes its investigations, relevant public entities are required to cooperate by disclosing all relevant material, including quarterly reports, to the Committee. The Egyptian Authority for Industrial Development will be responsible for creating a database of all the relevant information, in order to increase transparency and facilitate economic activity. Penalties With regards to penalties for non-compliance with the Committee, fines ranging from EGP 5,000 to EGP 100,000 can be levied against any individual refusing to disclose requested information. Similar fines will be levied against any individual who fails to respect the obligation to announce relevant information on the Government Procurement Portal website. Finally, a penalty of not less than EGP 50,000 and not more than 10% of the total value of the contract will be imposed against any individual providing incorrect information or documentation to the Committee. However, in cases of negligence this penalty will be decreased to range from EGP 5,000 to EGP 100,000.
Consistency with WTO Obligations
The preamble of the Law makes reference to Presidential Decree No. 72 of 1995 by which Egypt’s accession to the World Trade Organization ("WTO") was officially ratified. The WTO, the successor of the General Agreement on Tariffs and Trade ("GATT"), originally agreed to in 1947, aims to promote and facilitate international trade, and provides a set of principles whereby these goals can be achieved. As a full member of the WTO and a signatory of GATT and other related treaties, Egypt has accepted to respect and abide by these rules, two of which are especially relevant in light of January’s Presidential Decree-Law. While on the face of it, the new law may be criticized as conflicting with Egypt’s international obligations under the WTO, a closer look at the main WTO agreements make it clear that no such conflict exists. A core principle of the WTO’s international trade regime is that of non-discrimination. This principle is comprised of two main facets: the most favored nation rule and the national treatment rule. The most favored nation rule states that WTO members cannot favor other WTO nations over one another. Instead, when trading with each other, WTO nations must consider each trading nation as the ‘most favored nation’, offering it the same treatment as it would any other. The national treatment rule states that domestic products and imported products must not be treated differently. It ensures that domestic taxation regimes and governmental interference do not result in discrimination against non-local products. However, there is a proviso to the rule: it applies only once the products are available on the market; customs tariffs do not fall under its scope, meaning that discrimination can occur during importation.
Government Procurement Exception and Customary International Law
While the principles of most favored nation and national treatment are cornerstones of the WTO and are essential in facilitating international trade through the prohibition of discrimination by individual States, they are not absolute. Government procurement is afforded special status and is explicitly exempted in both the GATT (Article III: 8a) and the General Agreement on Trade in Services (GATS) (Article XIII:1). In particular, the GATT exemption reads as follows: “The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes”. The WTO has addressed the matter of government contracts in its Agreement on Government Procurement (GPA), first negotiated in 1981; Egypt is not a signatory member. The GPA aims to increase openness, transparency, and non-discrimination in government procurement contracts, bids, and tenders, rather than allow for the promotion of national products. The GPA affirms the WTO’s position on discrimination, while at the same time offering an international agreement that would allow government procurement to be regulated under international law. As Egypt has not signed the optional treaty, its provisions are non-applicable. As well as the provisions of the WTO treaties, customary international law, which is based on State practice, provides numerous examples of policies promoting domestic products in government procurement contracts. Notably, the United States’ Buy American Act promotes American products in government contracts, and has been reaffirmed and superseded by the Trade Agreements Act of 1979. The European Union’s Common Agriculture Policy is another notable example.
Public Tender Law No. 89 of 1998
Egypt’s position on trying to boost local production is not novel. Previous legislative measures have tackled the subject. Public Tender Law No 89 of 1998 provides an advantage to Egyptian businesses; domestic producers/manufacturers will be given priority when it comes to the tender process if the Egyptian bid does not exceed the lowest foreign bid by greater than 15%. Furthermore, Article 9 of the Public Tender Law stipulates that the relevant administrative body will determine the share of local component required for the execution of a project.
Conclusion
The new Law was enacted with an overarching aim: to boost the Egyptian local industry by increasing the utilization of Egyptian products in Government contracts. The Law stipulates several new measures, most notably the new Committee that will be established to will facilitate the process of promoting national products. With regards to Egypt’s international commitments, the Law does not appear to violate Egypt’s commitments under the WTO. On the surface, the WTO’s core principle of non-discrimination and its policy of national treatment appear difficult to reconcile with the new Law. However, because Law No 05/2015 deals with government procurement, it benefits from the exceptions found in the GATT and the GATS.   [1] Presidential Decree-Law No. 5/2015 on giving preference to Egyptian products in government contracts, Official Gazette, Issue No. 3 (bis), 17 January 2015.