PARLIAMENT PASSES WEAKENED AMENDMENTS TO THE COMPETITION

UNCLAS CAIRO 001351 SENSITIVE SIPDIS STATE FOR NEA/ELA, NEA/RA USAID FOR ANE/MEA MCCLOUD AND RILEY TREASURY FOR MATHIASON AND DENNIS COMMERCE FOR 4520/ITA/ANESA/OBERG E.O. 12958: N/A TAGS: ECON EINV EFIN EG SUBJECT: PARLIAMENT PASSES WEAKENED AMENDMENTS TO THE COMPETITION LAW Sensitive but Unclassified. Not for Internet distribution. REF: Cairo 396 ¶1. (U) The People's Assembly recently passed a modified version of amendments to the competition law proposed by the Egyptian Competition Authority (ECA) to make the law more effective. ECA proposed an obligatory fine of 10% of annual profits for companies found guilty of monopolistic practices. Press reports claim that prominent NDP MP Ahmed Ezz was behind the PA's decision to cap the fine at LE 300,000 million ($56 million) and leave imposition to the discretion of the courts. Ezz is one of Egypt's wealthiest individuals and the owner of Ezz Steel, Egypt's largest steel producer and the subject, along with several other steelmakers, of an ECA investigation into alleged cartel activity. Ezz is also reportedly responsible for removing from the final version of the amendments a "leniency" clause proposed by ECA. Leniency clauses are standard in many countries' anti-monopoly laws and the ECA proposal would have allowed a 50% reduction in the fine imposed on a company if the company admitted guilt and cooperated with ECA in investigating cartel activity. ¶2. (SBU) Press reports immediately began circulating that Minister of Trade and Industry Rachid had resigned in protest over the PA's watering down of ECA's proposed amendments. Rachid is widely seen as locked in a battle with Ezz over the former's efforts to improve transparency and enforcement of Egypt's commercial law, and separate the often intertwined interests of government officials and the private sector. Rachid's office quickly denied rumors of his resignation. Mona Yassin, Head of the ECA, told us that she and Rachid agree that passage of the amendments, even with the PA's modifications, is a partial victory. When the competition law passed in 2005, the maximum fine was LE 10 million ($1.8 million), the equivalent of one day's profits for some companies. The new maximum fine of LE 300,000, while less than ECA had hoped for, would still strengthen the deterrent effect of the law. ¶3. (SBU) Yassin saw Ezz's efforts to cap the maximum fine as evidence that steelmakers are concerned about ECA's investigation of the steel industry. After the public prosecutor decided to pursue a case against cement companies based on ECA's investigation of the cement industry (reftel),steelmakers began to worry the ECA investigation would turn up similar findings of monopolistic activity in the steel sector. ECA is still conducting its investigation of the steel industry, and a finding is expected in August. Yassin was vague about the reasons for delays in producing the results of the steel investigation, which were expected shortly after the cement investigation findings in late 2007. ¶4. (U) Yassin said she did not believe steel prices would be affected by a possible ECA finding of monopolistic practices in the steel sector. Steel prices increased 60-70% in the first half of 2008 and are currently in the range of LE 5,990 ($1,130) to LE 6,995 ($1,319)/ton. The real driving force behind rising prices is high demand due to the construction boom fueled by Gulf oil money. To lower prices, ECA recommended that the Ministry of Trade and Industry (MOTI) issue new licenses to steelmakers looking to enter Egypt's market, as a means of increasing the sector's capacity to meet high demand. So far, MOTI has not taken action on this recommendation, according to Yassin. She predicted prices would likely continue to rise over the next few months, though not as quickly as in the last six months. ¶5. (SBU) Comment: The weakening of ECA's proposed amendments to the competition law highlights the continued vulnerability of Egypt's government institutions and legal system to wealthy, powerful interests with strong connections to the regime. It also highlights how, as the government encourages private sector-driven growth, it must grapple with its role as a regulator charged with protecting consumers. Egypt's market economy is still fragile and consumer protection agencies like ECA are still poorly understood and easily abused. Absent strong disclosure or divestiture requirements for government officials, the wealthy class will continue to have ample opportunity to ensure that public policy benefits them. Numerous contacts have told us that Egyptians are acutely aware of steel and cement prices, as much of the residential construction in Egypt is done by individuals or families rather than construction firms. Ezz appeared on a television talk show shortly after the parliamentary action, claiming that he was not the driving force behind the weakening of the amendments. The host concluded with the expression "you can fool some of the people some of the time, but you can't..." SCOBEY