Assessment: Exports to Egypt will rise substantially soon

For US customs exemption, at least 35% of the Israeli-Egyptian added value must be jointly manufactured.

The qualified industrial zone (QIZ) agreement signed in Cairo today between the US, Israel and Egypt is based on the successful six year-old QIZ model between the US, Israel and Jordan.

The QIZ agreement defines locations for joint Israeli-Egyptian production of goods to be exported duty-free to the US. To win the exemption, the Israeli-Egyptian added value must be jointly manufactured, and total at least 35%. The agreement is designed as an incentive for Israeli and Egyptian companies to collaborate by exempting joint production from customs duties and quotas under free trade terms.

Under the agreement with Egypt, the minimum Israeli input was set at 11.7%, compared with 8% under the QIZ agreement with Jordan. The percentage is calculated on the basis of total quarterly turnover, rather than a specific input for each component or export good, as in the agreement with Jordan.

The Egyptian QIZs will be in Cairo, Alexandria, and Port Said. It is expected that cooperation between Israeli and Egyptian companies will not be limited to textiles, but will expand to other industries, including leather products, ceramics, suitcases, housewares, shoes, processed foods and juices.

The method for calculating the Israeli contribution will enable Israeli manufacturers exporting goods or inputs with high added value, such as textiles, which are not economical under the QIZ agreement with Jordan, to benefit from the QIZ agreement with Egypt.

Offis Textile (TASE:OFIS) CEO Ramzi Gabbay, who is also chairman of the Manufacturers Association textile and fashion division, said every factory in Egypt could buy textiles or critical components in Israel, creating considerable flexibility that is lacking in the agreement with Jordan. He said that under the Jordanian agreement, companies bought Israeli products, such as plastics or cartons, at uneconomical prices, in order to meet the minimum Israeli input requirement. In contrast, the agreement with Egypt enabled purchases from Israeli parties to be based on the overall optimal input.

Published by Globes [online], Israel business news - www.globes.co.il - on December 14, 2004

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