VZCZCXYZ0000
RR RUEHWEB
DE RUEHEG #3500/01 3510924
ZNR UUUUU ZZH
R 170924Z DEC 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 7756
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0364
UNCLAS CAIRO 003500
SIPDIS
SIPDIS
SENSITIVE
STATE FOR NEA/ELA, NEA/RA
USAID FOR ANE/MEA MCCLOUD AND RILEY
TREASURY FOR MATHIASON AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/OBERG
E.O. 12958: N/A
TAGS: PGOV ECON EG
SUBJECT: CONSUMER PROTECTION IN EGYPT
REF: CAIRO 3097
Sensitive but Unclassified. Please protect accordingly.
-------
Summary
-------
1. (SBU) Egypt's Consumer Protection Law came into effect in
November 2006, providing consumers with new legal protections and
businesses with new obligations. The law also created a Consumer
Protection Agency (CPA) authorized to investigate complaints and
mediate between consumers and businesses. CPA Director Said El Alfi
told us his biggest challenge is convincing consumers that CPA can
not control inflation. To educate the public, CPA held a media
workshop in November 2007, calling on journalists to help raise
awareness of consumer rights and responsibilities. Officials argue
that competition, not the CPA, will help control inflation.
Business has remained cautious about the law, concerned over
provisions making all businesses in the supply chain "collectively"
responsible for consumer protection. While a positive development,
Egypt's consumer protection efforts must be backed by steps to end
corruption and cronyism if real competition is to flourish.
-----------------------
Consumer Protection Law
-----------------------
2. (U) Egypt's Consumer Protection Law, passed in May 2006, came
into effect in November 2006. The law superseded a patchwork of
existing laws and consolidated legal protections for consumers and
attendant obligations for businesses. Consumers now have the right
to accurate information on products, including the products' origin
and the names of manufacturers and importers, and the right to safe
products that comply with official specifications. Accordingly,
businesses are prohibited from providing misleading information
about products or intentionally selling faulty goods. Businesses
are also now required to provide consumers with a sales receipt and
accept returns and exchanges within 14 days of sale, as long as a
receipt is presented. Both goods and services are covered by the
law. Businesses that fail to comply face fines from LE 5,000
(approximately $1,000) to LE 100,000 (approximately $18,000).
3. (U) One whole article of the law covers sales through
installments, a common means of purchasing big-ticket items in
Egypt. Only a fraction of Egypt's consumers use bank credit cards,
so many retailers, and even housing construction companies, offer
installment purchase plans. Businesses must now disclose full
information on the installment plan, including the name of any
intermediary creditor, the time period and number of installments,
and the total cost, including interest and fees.
4. (U) In addition to specifying legal protections, the law created
a Consumer Protection Agency (CPA) with authority to investigate
complaints, mediate between consumers and businesses, and recommend
legal action against businesses found in violation of the law.
Prior to creation of CPA, a consumer's only recourse in the case of
faulty merchandise not refunded/replaced by the producer was a civil
lawsuit. Several NGOs developed over the years to support consumers
in suits against businesses. The law empowered these NGOs to file
"class action" complaints with CPA on behalf of all consumers
against businesses suspected of violating the law. Several of these
NGOs have representatives on the CPA Board of Directors.
5. (U) Established with assistance from USAID, CPA began operations
in November 2006 under the umbrella of the Ministry of Trade and
Industry (MOTI). Its 15 member Board of Directors is appointed by
MOTI, drawing from industrial and commercial organizations as well
as consumer NGOs, the media and academia. According to Said El
Alfy, CPA's Director and a prominent NDP member, the agency's
overall mission is to "raise the quality of products and services in
the market." When investigating a complaint, CPA can direct MOTI's
cadre of inspectors to inspect businesses against which complaints
have been filed. CPA can also refer businesses to the Public
Prosecutor for legal action and possible penalty.
--------------
Misperceptions
--------------
6. (U) Egypt has not historically had a strong consumer base and
Egyptian consumers are still not used to having rights. Hence, it
is not surprising that El Alfi told us that his biggest challenge is
educating Egyptians about what a CPA does and overcoming the
perception that CPA was established to control inflation. Given
Egypt's inflation rate over the past year, averaging between 8-12%,
consumers are anxious about rising prices. Most still believe -
despite recent free market reforms - that the government should
intervene to keep prices under control. In April 2007, CPA opened,
with USAID support, a call center servicing the Cairo metropolitan
area. The center has received almost 2,000 complaints, 70% of which
were about rising prices, according to El Alfi. The bulk of the
legitimate complaints were about large appliances or cars, and most
were resolved in the consumer's favor through mediation with the
producer. CPA has also helped 3 companies to recall faulty products
over the past year. A branch of CPA is scheduled to open in
Alexandria in mid-2008.
----------------
The Media's Role
----------------
7. (SBU) In an effort to correct misperceptions, CPA, with
assistance from USAID, sponsored a media workshop in November 2007.
In his opening remarks, El Alfi stressed that the media should help
consumers be more informed and take greater responsibility for their
decisions in the marketplace. The media also has a responsibility
to report accurately, not "inciting" consumers through stories of
collusion and lack of government action, El Alfi told journalists.
After his remarks, El Alfi told us that much of the media retains a
"socialist" mentality, believing the government should not only
regulate the economy, but produce and control supply of basic
consumer goods to ensure stable prices. He pointed out that price
stability is the responsibility of the Central Bank (Note: CBE is
moving to an inflation targeting monetary policy, but local analysts
believe it will be a few years before the policy is fully
implemented and effective).
8. (U) Hisham Regab, Assistant Minister of Legal Affairs at MOTI,
emphasized to workshop participants that competition, not legal
protections for consumers, brings down prices. While price
collusion does occur, as evidenced by the Competition Authority's
finding of price collusion among cement producers (reftel), lack of
competition is the enabling factor in collusion. Greater
competition will not only bring prices down, but drive out
non-client-friendly businesses and those that sell defective
merchandise. It was for this reason that the government passed the
Competition Law first in 2005, and then the Consumer Protection Law
in 2006. A third law, governing "internal" trade, is expected in
2008.
-----------------
Business Reaction
-----------------
9. (U) Businesses remain concerned that new consumer protections
will make operating in Egypt more difficult than it already is. All
of the links in the supply chain, producers, importers, wholesalers
and retailers are now "collectively" responsible for ensuring that
products sold are defect-free. Mohamed Youssef, Secretary General
of the Egyptian Businessmen's Association, told us that some
producers are concerned about being held responsible for defects
caused by the retailer. Similarly, some retailers are concerned
about the new requirement to accept returns. Mohamed Hanno,
Managing Director of the Alexandria-based import firm Arab
Computers, told us that accepting returns is a completely new
practice in Egypt. Many businesses still have signs on the premises
stating that returns and exchanges are not allowed. Store owners
are concerned about consumers abusing their legal right to return
merchandise by, for example, purchasing items and returning them
after one use.
-------
Comment
-------
10. (SBU) The competition and consumer protection laws are positive
steps toward modernization of Egypt's commercial and regulatory
environment. In conjunction with the Competition Authority, the CPA
sets the stage for a modern consumer economy with a high degree of
transparency and greater trust between businesses and consumers.
Modernizing regulations and changing mindsets about consumer
behaviors, however, will take some time to become an accepted norm.
As evidenced by the number of calls CPA receives about prices,
consumers care much more about the cost of goods than about their
rights as a consumer. While increased competition will certainly
contribute to reducing prices, that degree of competition
(particularly in some industries) is not likely to take hold for
some time to come. For that to happen, the government will have to
address the corruption and cronyism that dominate Egypt's economy
and make it difficult for businesses to compete fairly in the
marketplace.
RICCIARDONE