JOINT STAFF WORKING DOCUMENT Implementation of the European Neighbourhood Policy in Egypt Progress in 2011 and recommendations for action Accompanying the document JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Delivering on a new European Neighbourhood Policy
Date: 2012-05-15
Institutions: European Commission, High Representative of the Union
Subjects: Egypt, European neighbourhood policy, administrative reform, cooperation in the field of education, corruption, democratisation, economic reform, environmental cooperation, institutional reform, job creation, judicial cooperation, judicial reform, trade cooperation

EUROPEAN COMMISSION 

HIGH REPRESENTATIVE OF THE
EUROPEAN UNION FOR 
FOREIGN AFFAIRS AND 
SECURITY POLICY

Brussels, 15.5.2012  
SWD(2012) 113 final 

JOINT STAFF WORKING DOCUMENT 

Implementation of the European Neighbourhood Policy in Egypt 
Progress in 2011 and recommendations for action 

Accompanying the document 

JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, 
THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE 
COMMITTEE OF THE REGIONS 

Delivering on a new European Neighbourhood Policy 

{JOIN(2012) 14 final} 
{SWD(2012) 110 final} 
{SWD(2012) 111 final} 
{SWD(2012) 112 final} 
{SWD(2012) 114 final} 
{SWD(2012) 115 final} 
{SWD(2012) 116 final} 
{SWD(2012) 117 final} 
{SWD(2012) 118 final} 
{SWD(2012) 119 final} 
{SWD(2012) 120 final} 
{SWD(2012) 121 final} 
{SWD(2012) 122 final} 
{SWD(2012) 123 final} 
{SWD(2012) 124 final} 

EN 

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1. 

OVERALL ASSESSMENT AND RECOMMENDATIONS 

This  document  reports  on  progress  made  on  implementation  of  the  EU-Egypt  ENP 
Action  Plan  between  1  January  and  31  December  2011,  although  developments 
outside this period are also taken into consideration when deemed relevant. It is not a 
general  review  of  the  political  and  economic  situation  in  Egypt.  For  information  on 
regional  and  multilateral  sector  processes  in  the  context  of  the  Partnership  for 
Democracy  and  Shared  Prosperity,  readers  should  also  refer  to  the  Partnership  for 
Democracy and Shared Prosperity Progress report. 

Egypt experienced  profound change and daunting political and economic challenges 
in  2011.  After  the  25  January  democratic  uprising  toppled  the  authoritarian  regime, 
the Supreme Council of the Armed Forces (SCAF) took over presidential, legislative 
and executive powers in the country as a transitional measure and was charged with 
stewarding  the  country  toward  meeting  the  legitimate  requests  of  the  people  for 
political freedom, respect for human rights and better socio-economic conditions. 

In the event, an interim cabinet of ministers was set up and Egypt saw several changes 
over  the  year.  The  electoral  system  was  reformed.  Parliamentary  elections  were 
organised  between  November  2011  and  February  2012  in  a  generally  free  and 
transparent manner and resulted in Islamic parties taking a strong lead in parliament. 
The focus is now on drafting a new Constitution and electing a President. Following 
some domestic debate, SCAF has announced that it will hand over power on July 1st 
2012 following Presidential elections which will be held in May and June.  

During  the  transition  period  the  military’s  respect  for  basic  human  rights  and 
democratic  standards  has  not  been  satisfactory.  Police  and  military  personnel  who 
resorted to excessive use of force during the demonstrations, notably against women, 
have yet to be investigated. Thousands of activists were arbitrarily detained. Military 
courts  were  used  to  try  activists  and  bloggers.  Reports  of  the  use  of  torture  and 
degrading  treatment  in  detention  and  prison  have  continued.  That  said,  SCAF  has 
announced pardons for some 2,000 people sentenced by military tribunals. However, 
more than 1,400 remain in military jails. In addition, the situation of foreign-funded 
civil  society  organisations  (CSOs)  has  become  precarious  with  the  interim  Egyptian 
authorities launching a public campaign and investigations against them. 

Most  of  the  staff  of  the  disbanded  State  Security  Investigation  Office  were  simply 
transferred to the new National Security Service and, more generally, security sector 
reform  remains  a  major  challenge.    Attempts  were  made  to  bolster  the  privileged 
position  of  the  military  by  establishing  "supra-constitutional"  principles  aimed  at 
keeping  its  budget  outside  civilian  control  and  giving  it  legislative  veto  power  over 
laws related to the army. The proposals created a public outcry and were blocked. 

On the other hand, the state of emergency was partially lifted in January 2012. 

While the Egyptian economy was generally resilient to the worldwide economic and 
financial crisis, it was severely affected by the people's uprising, the subsequent social 
unrest as well as by the war in neighbouring Libya. Economic activity first contracted 
significantly in Q1 2011 and remained subdued for the remainder of the year, with the 
fiscal balance being affected. Revenue from tourism, representing 11% of GDP fell by 

2

 
 
about  a  third,  and  international  investor  confidence  was  dented,  leading  to  large 
outflows  of  portfolio  investments  and  to  diminished Foreign Direct Investment. The 
Balance  of  Payments,  led  mainly  by  capital  account  deficits,  has  deteriorated 
markedly  during  the  period.  As  a  result,  the  stock  of  foreign  reserves  halved  since 
January  2011  in  the  face  of  strong  depreciation  pressures  of  the  Egyptian  pound. 
Access  to  external  sources  of  financing  is  thus  essential.  Official  unemployment, 
already high in previous years, increased to 12.4% by end 2011. 

Ongoing  political  and  economic  uncertainty  meant  that  progress  on  the  structural 
reforms outlined in Egypt's Action Plan was limited. On the positive side, the work to 
overcome  technical  barriers  to  exports  advanced  when  Egypt  became  an  associate 
member  in  the  European  cooperation  for  accreditation,  the  process  for  creating  a 
business was simplified and a competition authority was set up. Following the 2011 
events  the  need  for  thorough  social  and  economic  reform  has  become  more  evident 
than ever. The interim authorities have been unable to engage on achieving long-term 
objectives.  This  is  something  that  they  prefer  to  leave  to  a  democratically  elected 
government when it takes office. For this reason, few advances were made during the 
reporting  period,  although  some  progress  was  registered  on  health  reform  including 
further rolling out of the Egyptian ‘family health model’. 

No progress was achieved on trade-related issues or on market and regulatory reform. 
The  EU  adopted  on  14  December  negotiating  directives  for  a  Deep  and 
Comprehensive Free Trade Area (DCFTA). However, the interim Egyptian authorities 
are not ready to engage, given their limited mandate. Similarly, they have declined the 
offer made by the EU to start a dialogue on Mobility, Migration and Security, in order 
to conclude a Mobility Partnership.  

On  the  basis  of  this  year’s  report  and  to  sustain  implementation  of  the  ENP  Action 
Plan in 2012, Egypt is invited to:  

•  Ensure  that  all  powers  are  handed  over  to  a  civilian  administration  and  that  the 

state of emergency is fully lifted before the presidential elections. 

•  Draft and adopt, following an inclusive drafting process, a democratic constitution 

that enshrines respect for human rights. 

•  Discontinue the use of military courts to judge civilians. 

•  Create  the  conditions  conducive  to  an  active  and  independent  NGO  community 

and adopt NGO legislation in full compliance with international standards.  

•  Preserve the freedom of religion and protect minorities. 

•  Design  and  implement  an  Economic  Reform  Programme  that  ensures  macro-
economic stability and strengthens public finance management, in order, inter alia, 
to  open  the  door  to  international  financial  assistance,  including  EU  Macro-
Financial Assistance. 

•  Sign  and  ratify  the  regional  Convention  on  Pan-Euro-Mediterranean  Rules  of 

Origin. 

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2. 

POLITICAL DIALOGUE AND REFORM 

Towards deep and sustainable democracy 

The  removal  from  office  of  former  President  Mubarak,  the  abolition  of  the  1971 
Constitution and the dissolution of Parliament effectively created a legal vacuum. The 
military, represented by the Supreme Council of the Armed Forces (SCAF), took over 
power  in  the  interim  and  has  ruled  by  decree.  An  interim  cabinet  of  ministers 
appointed by SCAF was also put in place and has seen several changes in the period. 
Initially,  SCAF  committed  to  a  transition  to  democratically  elected  civilian 
government  by  the  end  of  2011.  However,  the  timeline  was  extended  significantly, 
with  a  full  transition  to  civilian  rule,  i.e.  both  an  elected  parliament  and  an  elected 
president, only expected around mid 2013. The outbreak of country-wide protests in 
late  November  forced  SCAF  to  accelerate  the  timeline  by  holding  two  rounds  of 
parliamentary  elections  to  the  upper  house  (Shura  Council)  instead  of  three,  and 
Presidential  elections  by  the  end  of  June  2012.  In  March,  a  few  constitutional 
amendments,  mainly  linked  to  presidential  elections,  were  adopted  by  referendum 
with a majority of 77.2 %. This was Egypt’s freest vote in decades. Despite criticism 
from civil society that the amendments did not go far enough, they represent a major 
improvement on the Mubarak period. 

In  preparation  for  the  parliamentary  elections,  SCAF  issued  a  new  law  facilitating 
the  process  of  establishing  new  political  parties  and  a  new  law  defining  citizens’ 
political  rights.  This  includes  a  Higher  Electoral  Commission  made  up  entirely  of 
judges. The law also allows voting on the basis of national identity cards, rather than 
the  voter  cards  issued  at  every  election.  Parliamentary  elections  to  the  lower  house, 
the People’s Assembly, were organised in three rounds between the end of November 
2011 and mid January 2012. 

Egypt declined the EU offer to field a fully-fledged election observation mission for 
the  parliamentary  elections  but  allowed  seven  international  NGOs  to  ‘follow’  the 
elections.  According  to  observers,  there  was  no  systematic,  large-scale  vote  rigging. 
The elections saw the Muslim Brotherhood’s Freedom and Justice Party emerge as the 
largest party with 47% of the seats, the Salafist El Nour party second with 24% and 
the centrist New Wafd party third with 8 %. These figures may be marginally adjusted 
in the light of ongoing legal challenges. The EU is supporting the electoral process by 
providing financial support to Egyptian civil society organisations to train over 1000 
election  observers,  raise  voter  awareness  and  build  capacity  for  the  Electoral 
Commission. 

In January 2012, SCAF partially lifted the state of emergency that had been in place 
for  more  than  four  decades.  However,  many  other  measures  taken  by  SCAF  during 
this  transition  period  fall  short  of  democratic  standards.  Activists  and  bloggers 
arrested,  for  example  for  ‘defaming  the  military’,  have  been  judged  by  military 
tribunals, thus violating their right to a free and fair trial. Furthermore, in an effort to 
secure a privileged position, SCAF raised the idea of ‘supra-constitutional principles’ 
that  the  future  constitution  should  enshrine.  Such  principles  would  include  the 
absence of any civilian and democratic oversight of the military budget. The issue 
is still open and is not likely to be resolved before the drafting of the constitution. 

The  excessive  use  of  force  against  demonstrators  and  restrictions  on  freedom  of 
assembly remain a major concern. As regards freedom of association, the situation 

4

 
 
of  foreign-funded  civil  society  organisations  has  become  precarious.  The  authorities 
launched  a  public  campaign  and  investigations  targeting  civil  society  organisations 
funded by international donors. On 29 December, security forces stormed the offices 
of  ten  NGOs  —  in  particular  US-funded,  but  also  EU-funded  organisations.  The 
offices were closed down and documents and computers were seized. At the time of 
drafting  of  this  report,  the  issue  is  still  not  fully  resolved  despite  international 
reactions, including a statement by the High Representative of the Union for Foreign 
Affairs and Security policy which called for an immediate halt to the harassment of 
NGOs working in Egypt. 

Current NGO legislation contains a large number of unclear legal provisions that do 
not  favour  transparency  and  accountability.  The  initial  draft  law  tabled  by  the 
authorities was highly criticised by the NGO community. New drafts are now being 
discussed in parliament.  The NGO Federation had lost ground in the past year but is 
now  being  re-established  as  a  key  interlocutor  with  the  authorities.  EU  funding  for 
ongoing projects supporting civil society organisations amounts to EUR 12 million. 

Likewise,  freedom  of  expression  remains  a  cause  for  concern.  At  the  beginning  of 
the uprising, the authorities blocked several social networking websites that covered 
the peaceful demonstrations. The police force, instructed by the previous Minister of 
Interior,  carried  out  violent  attacks  on  local  and  international  reporters.  Some 
journalists  died  and  many  were  arrested.  Civil  society  organisations  have  reported 
restrictions on  media  freedom.  Pressure  has  been  put  on  media  operators  to  refrain 
from  publishing  criticism  of  the  government  and  bloggers  have  been  arrested, 
detained and sentenced for criticising the military. 

Reducing corruption remains a major challenge, as indicated by the fact that Egypt 
continues  to  fall  down  the  ranking  of  the  Transparency  International  Corruption 
perception index. It has fallen 14 positions since 2010 and it is now 112th. 

Regarding  security  and  law  enforcement  sector  reform,  the  State  Security 
Investigation  Office  (SSI)  was  dissolved  in  March  and  has  become  the  National 
Security Service (NSS). The government announced that the NSS would be subject to 
judicial oversight and only work as a civil intelligence-gathering agency. Civil society 
organisations  report  that,  despite  earlier  promises,  SSI  officers  involved  in  torture 
were redeployed in the new National Security apparatus, albeit in different positions. 
Egypt has not yet taken up an EU offer to assist with security sector reform. 

Other human rights and governance-related issues 

Since Egypt’s acceptance of most of the recommendations in the Universal Periodic 
Review  (UPR)  in  June  2010,  limited  progress  was  made  in  2011  on  implementing 
these recommendations. 

The  death  penalty  continues  to  be  considered  an  effective  criminal  deterrent  in 
Egypt.  There  is  little  official  data  on  the  number  of  death  penalty  sentences  and 
persons executed in Egypt. However, during recent months there has been an increase 
in  the  number  of  death  sentences  issued  in  martial  courts.  Furthermore,  prosecutors 
have  demanded  the  death  sentence  for  ex-President  Mubarak,  the  former  interior 
minister, and a number of senior police officers. 

5

 
 
The  Egyptian  definition  of  torture  as  a  criminal  offence  does  not  yet  fully  comply 
with the UN Convention against Torture. During the revolution, hundreds of people 
claimed  to  have  been  subjected  to  torture.  Egypt’s  interior  minister  has  ordered 
investigations. 

Women  continue  to  face  discrimination.  Egypt  still  lacks  a  legal  environment  to 
protect  girls  and  women  from  violence,  encourage  them  to  report  attacks,  and  deter 
perpetrators from committing abuses against them. Female activists have been victims 
of violence by security forces. International NGOs have received reports from female 
protesters 
indicating  beating,  electric  shocks,  strip  searching  while  being 
photographed  by  male  soldiers,  forced  ‘virginity  tests’  and  threats  of  prostitution 
charges.  It  is  still  difficult  for  women  to  participate  in  political  life.  In  addition,  the 
law on parliamentary elections did not include the quota for women established under 
the previous regime. 

The situation concerning children’s rights has not improved and some children also 
endured violence during the revolution. There are reports on the increasing number of 
street children in Egypt exposed to sex trafficking and forced begging. 

Concerning the freedom of religion, a number of incidents of sectarian violence took 
place, particularly in the first half of 2011. In June, Egyptian churches welcomed the 
draft law on places of worship, through which building applications will be speeded 
up.  Following  the  Maspero  events  in  October  —  an  initially  peaceful  Coptic 
demonstration  that  eventually  turned  very  violent  with  several  casualties  —  the 
Ministry  of  Justice  announced  that  it  would  begin  reviewing  disputed  permits  for 
church construction. 

Cooperation  on  foreign  and  security  policy,  regional  and  international  issues, 
conflict prevention and crisis management 

Increased  tensions  with  Israel  culminated  in  a  border  incident  in  August  and  the 
storming  of  the  Israeli  Embassy  in  Cairo  in  September.  Egypt  remained  an  active 
partner  in  the  Middle  East  Peace  Process  in  2011.  Thanks  to  continued  Egyptian 
reconciliation  efforts,  most  Palestinian  factions  signed  on  4  May  in  Cairo  a 
memorandum  of  understanding  marking  a  concrete  step  towards  Palestinian 
reconciliation. The Egyptian authorities were also directly involved in a prisoner swap 
that included the Israeli soldier Gilat Shalit. 

The Egyptian authorities played an important and constructive role during the Libyan 
crisis, especially in facilitating much needed humanitarian assistance and repatriating 
expatriates from Libya. 

Egypt  has  also  signalled  re-engagement  on  its  Africa  policy  with  several  visits  to 
Egypt’s  sub-Saharan  neighbouring  countries,  stressing  Egypt’s  wish  to  reaffirm 
stronger relations with all countries of the African continent. Egypt actively supported 
the  continued  unification  of  Sudan  and  contributed,  with  other  partners,  to 
development  and  reconstruction  programmes  and  work  in  Darfur.  Since  the  25 
January uprising, Egypt has intensified its efforts to find a negotiated solution to the 
Comprehensive Framework Agreement of the Nile Basin Initiative. 

6

 
 
 
3. 

ECONOMIC AND SOCIAL REFORM 

Macroeconomic framework and functioning market economy 

The  economy  was  severely  affected  by  the  democratic  uprising  and  the  subsequent 
unrest. The fiscal situation deteriorated rapidly, as did the stock of foreign reserves as 
the authorities fought to defend the managed float from strong depreciation pressures. 
As  a  consequence,  the  administration  is  increasingly  reliant  on  external  financing. 
Ongoing  political  and  economic  uncertainty  meant  that  little  progress  was  made 
towards the structural reforms outlined in Egypt's Action Plan.  

Domestic  activity  fell  following  widespread  strikes  and  the  closure  of  shops  and 
banks;  tourism  revenues  (around  11%  of  GDP)  dropped  by  about  33%.  The  Stock 
Exchange  closed  for  55  days  and  lost  about  40%  of  its  capitalisation  by  the  end  of 
March. The conflict in neighbouring Libya led to a drop in remittances and the return 
home of many Egyptian migrant workers. As a result, real GDP fell to -4.2% year-on-
year in Q1 and official unemployment rose to 12.4% by end 2011 (from 8.9% in Q4 
2010).  

The  economy  began  to  rebound  in  Q2,  growing  by  0.4%  year-on-year  as  the 
construction,  transportation,  manufacturing  and  retail  sectors  all  re-expanded. 
However, economic performance was hit once more by further domestic unrest during 
the parliamentary elections at the end of the year.  

Inflation  was  high  and  rose  between  in  January-June  2011,  due  to  domestic  food-
market inefficiencies and the continued rise in international commodity prices.  As a 
result, the Central Bank tightened monetary policy in October 2011 for the first time 
in two years. Inflation fell steeply from July onwards, (7.1% in October), reflecting a 
fall in international and local food prices.  

The  Central  Bank  allowed  the  Egyptian  pound  (EGP)  to  depreciate  slightly  during 
2011 reaching a historical low value of 6.03 EGP/US$ in December 2011 (down from 
5.8  in  early  2011).  In  a  bid  to  calm  investors  the  Central  Bank  refrained  from 
imposing  capital  controls  on  foreign  nationals  and  corporations  but  continued  to 
defend the managed float. This led to a steady drop in official currency reserves from 
around  USD  36  billion  (EUR  27.7  billion)  at  the  end  of  2010  to  USD  16.4  billion 
(EUR 13.9 billion) at end of January 2012, representing around five months' imports 
of goods and services.   

The  fiscal  deficit  rose  during  the  2010-2011  fiscal  year  as  revenue  fell  and 
expenditure on subsidies and interest payments rose. The final budget for 2011-2012 
sought  to  reduce  the  deficit  to  8.6%  of  GDP  (rather  than  the  11%  originally 
proposed),  although  it  is  unlikely  that  this  target  will  be  met  due  to  the  dampened 
economic environment. The Egyptian authorities are increasingly looking to financial 
assistance from  other Arab countries  and financial  institutions –  most notably Saudi 
Arabia, the UAE, Qatar and the Arab Monetary Fund. The government turned down a 
USD 3 billion stand-by loan from the IMF in June, but a new request for a USD 3.2 
billion stand-by facility was made in mid January 2012 that was under discussion at 
the time of writing. 

7

 
 
The Fifth Economic Dialogue between the EU and Egypt took place in July 2011, at 
which representatives from the interim government and EU exchanged views on the 
macro-economic situation and their relevant economic policies.  

Employment and social policy 

The 25 January Revolution and the ensuing economic slowdown exacerbated already 
high poverty levels (in particular in rural Upper Egypt) and major disparities both at 
geographical level and between rural and urban areas. The continuing negative trend 
over the past years (the national poverty rate was estimated at 22.8 % in 2008, against 
16.9 % in 2000) contributed to the social unrest in 2011. Official unemployment rose 
to 12 % (from 9 % in 2010), while youth (in particular higher education graduates) and 
female  unemployment  (at  19.3 %  compared  to  5.6 %  for  males)  remained  a  major 
concern. Most job losses occurred in labour-intensive sectors such as manufacturing, 
tourism  and  construction.  Labour  migration  and  skills  remained  high  on  Egypt’s 
policy agenda. Egypt continued to prioritise skills upgrading for Egyptian workers in 
view of accepting work in Libya and other neighbouring Arab counties, and support 
for this was received from several donors. 

Egypt is reviewing its National Action Plan on Youth Employment 2010-2015. More 
than  3  million  jobs  would  need  to  be  created  by  2015  to  achieve  the  objective  of 
reducing unemployment for the 15-30 age group to 15 %. 

Egypt  announced  as  one  of  its  major  goals  the  strengthening  of  freedom  of 
association,  tackling  the  minimum  wage  issue,  improving  vocational  education 
programmes  and  promoting  worker  education.  Following  the  announcement  on  the 
freedom  of  Egyptian  workers  to  establish  their  own  labour  unions  and  federations, 
Egypt was taken off the ILO list of the worst 25 violators of workers’ rights in June 
2011.  

Amendments  to  Egyptian  labour  law  are  still  required  to  fully  ensure  that  workers’ 
social rights are in line with international standards. Following the announcement in 
March  2011  of  a  draft  law  allowing  strikes  and  demonstrations  to  be  banned  as  an 
exceptional measure under emergency law, a military court sentenced five workers to 
a one-year prison sentence following a sit-in in June 2011.   

As regards social protection, in July 2011, the authorities approved a 700 EGP/month 
minimum wage for public sector employees.  

The 25 January revolution put vocational education and training (VET) high up on 
the  political  and  government  agenda  because  of  the  need  to  address  the  growing 
unemployment  and  provide  the  labour  market with  the  skills  it  needs.  However,  the 
institutional  setting  in  the  VET  sector  remained  extremely  fragmented.  The  creation 
of pathways between vocational education and training (VET) and higher education, 
in particular through the “Clusters Project” (with support from several donors), should 
help  to  tackle  this  situation.    In  order  to  boost  skills  development,  work  was 
undertaken to reactivate the Training Fund, established under the 2003 Labour Law. 
EU  financial  support  on  employability  continued  via  the  EUR  35M  Technical  and 
Vocational Education and Training Programme. 

8

 
 
Further reforms are needed, in particular to build social partners’ capacity to become 
independent,  representative  and  well-governed  organisations  capable  of  engaging  in 
social  dialogue  and  contributing  to  the  formulation  of  effective  labour  market 
policies.  The  Ministry  of  Manpower  and  Migration  and  the  related  government 
agencies should better coordinate, introduce strategic planning methods, and modern 
information  management  systems  and  training.  The  legal  framework  for  labour 
administration and labour inspection needs to be enhanced.    

4. 

 TRADE-RELATED ISSUES, MARKET AND REGULATORY REFORM 

The  EU  is  overwhelmingly  Egypt's  largest  trading  partner  covering  almost  32%  of 
Egypt's trade volume. Bilateral trade has more than doubled since the entry into force 
of the Association Agreement, from € 11,5 bi llion in 2004 to its highest ever level of 
€23,3  billion  in  2011.  In  2011,  EU  imports  fr om  Egypt  were  dominated  by  energy 
products  (57.9%),  followed  by  chemicals  (10.9%)  and  textiles  and  clothing  (9.5%). 
EU  exports  to  Egypt  consist  mainly  of  machinery  (35.0%)  and  chemicals 
(16.6%).Egypt maintained the existing export restrictions on rice until October 2011. 
Moreover,  Egypt  adopted  several  new  trade  restrictive  measures.  In  October  2011, 
without  prior  consultation  with  the  EU,  an  import  ban  on  cotton  was  adopted.  This 
measure  is  neither  compatible  with  the  EU-Egypt  Association  Agreement,  nor  with 
WTO rules. Egypt also initiated in November 2011 a safeguard procedure with regard 
to  cotton  and  mixed  yarn.  The  EU  has  registered  as  an  interested  party  to  this 
investigation.  As  of  31  December  2011,  Egypt  implements  a  provisional  safeguards 
duty  on  cotton  and  mixed  yarn.  New  protectionist  measures  also  affect  ready-made 
garments  and  leather  where  significant  non-tariff  barriers  were  announced  in 
November 2011. 

Negotiations on the liberalisation of services and establishment did not progress.  

In principle, Egypt agrees to apply customs valuation rules included in Article VII of 
GATT and World Customs Organisation commentaries, although some difficulties on 
maintenance and guarantee costs in the customs value of cars have been reported. The 
requirement  for  'source'  certificates  of  origin  when  the  place  of  manufacture  is 
different to the place of dispatch was suspended after exporters and importers raised 
concerns. Economic operators reported increased bureaucracy in customs procedures, 
making  them  longer  with  a  tendency  towards  less  predictable  application  of  rules. 
Egypt  has  been  failing  to  modernise  and  simplify  its  customs  legislation  and 
procedures.  The  new  customs  law,  which  was  expected  to  be  adopted  during  the 
reporting period, has yet to be approved by the Parliament. 

On  the  free  movement  of  goods  and  technical  regulations,  Egypt  continued  its 
preparations  for  the  negotiation  of  an  Agreement  on  Conformity  Assessment  and 
Acceptance of Industrial Products (ACAA).  

On accreditation, the Egyptian Accreditation Council (EGAC) signed a co-operation 
contract with the European co-operation for Accreditation (EA). It is a full member of 
the  International  Accreditation  Forum  (IAF)  and  the  International  Laboratory 
Accreditation  Cooperation  (ILAC).  It  will  endorse  peer  assessments  to  get  the  EA 
Multilateral Recognition Arrangements (MLAs). In November 2011, EGAC became 
an Associate member in the European Co-operation for Accreditation.  

9

 
 
Market  surveillance  remains  a  key  concern.  Egypt  is  encouraged  to  finalise  the 
alignment of its legislation, the adoption of related EU standards and its affiliation to 
the European Committee for Electrotechnical Standardisation (CENELEC). 

Regarding sanitary and phytosanitary (SPS) issues, the draft unified food law and 
the  establishment  of  a  single  food  safety  authority  remained  pending.  The  EU  and 
Egypt  addressed  several  trade  irritants  and  as  a  result,  Egyptian  potato  imports  into 
the  EU  can  follow  simplified  procedures  in  the  forthcoming  season.  Following  a 
severe  outbreak  of  a  food-borne  illness  in  the  EU  (linked  to  the  Escherichia  coli 
bacteria),  in  July  2011,  the  European  Commission  temporarily  banned  imports  of 
certain seeds and beans from Egypt. In August 2011, the Food and Veterinary Office 
(FVO) of the European Commission carried out a mission to assess the production of 
seeds  that  may  be  consumed as  sprouts.  Subsequently,  Egypt  committed  to  address 
the FVO observations.  

On construction permits, payment of taxes and contract enforcement remained critical 
areas  affecting  Egypt's  business  climate.  Payment  arrears  by  public  bodies  affected 
enterprises. Compared to the previous year, Egypt moved from the 108th to the 110th 
place in the ease of doing business ranking in the World Bank's 'Doing Business 2012' 
annual report. 

There was no progress in the field of establishment and company law. The security 
threats, the legal and administrative uncertainty created by the revocation of past State 
contracts,  and  the  difficulties  in  obtaining  licenses  and  payments  from  the  public 
authorities, constitute worrying signals. The result was a fall by almost 70% in foreign 
direct investment (FDI) inflows. 

The regulatory reform and administrative simplification e-registry was launched at the 
beginning  of  July  2011,  providing  free  online  access  to  more  than  30.000  business-
related regulations (http://eregistry.errada.gov.eg/).  

Following the closure, on 30 January 2011, of the stock exchange after losing 10% in 
the  market  and  12  billion  USD  in  2  days,  the  Egyptian  Financial  Supervisory 
Authority (EFSA) issued new conditions for trade resumption to provide reassurance 
to  the  markets.  Trading  resumed  on  23  March  2011.  EFSA  issued  rules  on  good 
governance  (extending  ownership  disclosure  requirements  in  listed  companies  from 
end  of  May  2011).  The  Central  Bank  of  Egypt  (CBE)  elaborated  and  enacted  good 
governance  rules  that  include  measures  for  restructuring  CBE's  board  in  order  to 
ensuring more independence and to eliminate conflicts of interest. 

No significant developments can be reported on services and financial services.  

Other key areas 

The State budget and the economic recovery programme of June 2011 proposed tax 
reforms  to  help  the  private  sector.  New  tax  measures  include  eliminating  customs 
exemptions,  expected  to  generate  EGP  0.5-1  billion  in  revenue.  Income  tax  will 
become more progressive by a rise in the exemption threshold on wage income and by 
a  new  25%  tax  rate  for  the  top  income  bracket  (over  EGP  10  m).  Egypt  suspended 
implementation of the new tax on commercial and residential property brought in by 
the previous government in 2010.  

10

 
 
In June 2011, the Egyptian Competition Authority (ECA) and the National Telecom 
Regulatory  Authority  agreed  to  coordinate  procedures  and  methods.  By  June  2011, 
ECA had received ten cases and initiated one sector study. A study on the milk market 
identifying  violations  of  competition  law  was  published  in  March  2011.  Since 
December 2011, ECA has the power to settle final cases or to refer them to the public 
prosecution  without  prior  authorization  from  the  competent  minister.  Three  cases 
were  referred  for  prosecution.  The  EU  supported  ECA  through  a  twinning  project. 
The  OECD  undertook  a  performance  assessment  of  ECA,  and  noted  positive 
developments.  

There  were  no  significant  developments  on  Intellectual  Property  Rights,  public 
procurement and accounting. 

A new law on national  statistics has been drafted by the Central  Agency  for  Public 
Mobilization and Statistics with EU assistance. Following the European Commission's 
decision no. 30 from 19 January 2011, for a transitional period, auditors and audit 
companies from Egypt will be allowed to audit EU companies without being subject 
to  approval  or  registration  in  the  EU.  Egypt  developed  plans  for  a  public  finance 
management  reform  strategy  (with  support  from  the  EU  and  other  donors),  in 
particular on internal audit. However, no concrete measures were adopted in 2011.  

On enterprise policy, the General Authority for Investment and Free Zones (GAFI) 
announced  new  measures  to  boost  investment,  including  a  reduction  in  the  time 
needed for foreign companies to register branches (from 4-6 months to 3 days), and 
cancellation of initial approval from the Industrial Development Authority (IDA) for 
industrial projects. GAFI benefits from an EU twinning project. Egypt also announced 
a plan to attract foreign investment to prospect for gold and other minerals. The Prime 
Minister  established  in  May  a  permanent  committee  for  solving  investment-related 
problems.  The  privatization  process  is  officially  suspended  and  three  privatisation 
contracts  have  been  cancelled  by  administrative  rulings.  Others  are  pending  in  the 
courts. 

5. 

COOPERATION ON JUSTICE, FREEDOM AND SECURITY 

Egypt  hosts  a  large  refugee  community.    It  generally  respects  the  principle  of  non-
refoulement, but it has not yet established a proper asylum system or legislation.  This 
implies that in Egypt, the identification, assistance and protection of asylum seekers 
and refugees remains the sole responsibility of the UNHCR. Some asylum seekers and 
refugees  are  denied  the  possibility  of  access  to  UNHCR,  which  may  lead  to  their 
detention or expulsion as irregular migrants. Egypt maintains significant reservations 
on  the  1951  Geneva  Convention  on  the  Status  of  Refugees  on  the  basis  of  which, 
asylum seekers and refugees continue to be denied access to free state education and 
health care.  

In  2011,  the  number  of  asylum  seekers  and  refugees  in  Egypt  increased,  due  to  the 
massive arrival of persons escaping the revolution in Libya.  Some of them (especially 
Libyan citizens or nationals of countries to which return was possible) subsequently 
left Egypt, but others remained, sometimes stranded with very limited assistance near 
the  Salloum  border  crossing  point.  At  the  end  of  2011,  over  44,000  refugees  and 
asylum-seekers were registered with the UNHCR. 

11

 
 
Particularly  worrying  in  2011  was  the  situation  of  asylum  seekers  and  irregular 
migrants  in  the  Sinai  region,  notably  those  coming  from  the  Horn  of  Africa.    The 
refusal of Egypt to let UNHCR operate in that region made it impossible to provide 
international protection to those in need. The methods chosen by Egypt to control the 
border with Israel led to the killing (as of August 2011) of some 11 migrants, who had 
unlawfully approached that border. Furthermore, many asylum seekers and migrants 
trying  to  cross  the  region  with  the  help  of  local  smugglers  were  kidnapped  by  the 
latter  and  subject  to  inhuman  treatment,  torture  and  organ  stealing.  The  Egyptian 
authorities have been failing to address this problem adequately, despite the urgency. 
Efforts  should  be  made  to  dismantle  the  criminal  organisations  involved,  free  those 
migrants  which  are  still  under  their  control  and  provide  to  them  the  necessary 
humanitarian  assistance  On  15  March  2012,  the  European  Parliament  adopted  a 
Resolution strongly condemning human trafficking in Sinai and asking the Egyptian 
authorities to take an urgent action.    

In  2011,  the  EU  signed  with  UNHCR  a  EUR  3.6  Million  Regional  Protection 
Programme  encompassing  Egypt,  Libya  and  Tunisia.  Its  goal  in  Egypt  is  to  support 
UNHCR capacity to better identify persons in need of international protection, to offer 
social  services  and  sustainable  protection  solutions  to  them,  and  to  enhance  their 
capacity for self-reliance.    

On border management, Egypt eased restrictions for Palestinians residing in Gaza, 
granting  -  as  of  May  2011  -  visa-free  entry  to  certain  categories  (such  as  children, 
women, men over 40, students and Palestinians seeking medical treatment in Egypt). 
Egypt  continued  the  construction  of  an  underground  metal  barrier  along  the  border 
with Gaza, in order to reduce tunnel smuggling. In the course of 2011, less than 1,000 
irregular migrants from Egypt were registered in Italy. 

Egypt  is  part  of  the  first  region  where  the  Visa  Information  System  (VIS)  became 
operational  on  11  October.    The  VIS  is  a  centralised  database  which  allows  for  the 
recording  and  exchanging  of  information  about  short  stay  visas  between  Member 
States  of  the  Schengen  area.    The  VIS  aims  at  reinforcing  the  effectiveness  and 
security  of  visa  issuing  procedures  and  border  controls,  as  well  as  facilitating  the 
identification of visa holders via the use of biometric indicators. 

Following  exploratory  talks  in  June  2011,  the  EU  offered  Egypt  the  prospect  of 
opening of a comprehensive Dialogue on Mobility, Migration and Security, leading 
towards  the  conclusion  of  a  Mobility  Partnership.  In  September  2011  the  Egyptian 
authorities declined the offer. 

On judicial cooperation in criminal and civil matters – following the EU decision of 
March  2011  to  impose  the  freezing  of  funds  and  economic  resources  owned  or 
controlled  by  persons  identified  as  responsible  for  the  misappropriation  of  Egyptian 
funds – cooperation between the EU and Egypt was supported via a EUR 2.5 Million 
project carried out with the UN Office on Drugs and Crime. The project, launched in 
July  2011,  focuses  on  the  fight  against  corruption,  money  laundering  and  asset 
recovery.  Egypt  is  also  participating  in  the  regional  “Euromed  Police  III”  project, 
which started in September 2011. 

Egypt  has  not  taken  any  steps  to  accede  to  the  major  conventions  on  judicial 
cooperation in criminal law in the framework of the Council of Europe, or in relation 

12

 
 
to civil law under the Hague system. While Egypt is party to some instruments under 
the  Hague  Conference  on  Private  International  Law,  there  was  no  progress  on 
accession  to  important  international  conventions  on  family  law  (such  as  the  1980 
Hague  Convention  on  the  Civil  Aspects  of  International  Child  Abduction  and  the 
1996 Convention on Parental Responsibility and the Protection of Children).   

6. 

TRANSPORT,  ENERGY,  ENVIRONMENT,  THE 
RESEARCH AND INNOV ATION 

INFORMATION  SOCIETY, 

Implementation  of  the  ambitious  transport  reform  programme  (EUR  80  million  of 
EU budget support) suffered further delays, notably in the road and rail sector. Some 
major  rail  infrastructure  investments  (especially  signalling  on  the  Cairo-Alexandria 
and  Minya-Assuit  railways)  continued  to  be  implemented.  In  June  2011,  Egypt 
preliminarily  agreed  to  resume  negotiations  with  the  EU  on  the  horizontal  aviation 
agreement.  Restructuring  of  the  inland  waterway  sector  resumed  in  March  2011, 
including  the  creation  of  a  telecommunications  network  and  management  system 
linking  barges  with  the  river  transport  authority.  In  the  maritime  sector,  Egyptian 
efforts  to  boost  its  administrative capacity  and  to  improve  flag  state  implementation 
(also through an EU twinning project) have led to tangible results: the Egyptian flag 
moved  from  the  black  list  up  to  the  grey  list  of  the  Paris  Memorandum  of 
Understanding on Port State Control. 

In  February  2011,  the  Supreme  Energy  Council  decided  to  update  the  Egyptian 
energy strategy for 2030 in the light of the new situation in the country. On this basis, 
a  white  paper  will  be  drafted  with  EU  assistance.  The  EU  and  Egypt  launched  a 
project  to  help  strengthen  the  electricity  regulator.  Egypt  further  developed  its 
electricity networks. It remained committed to enhancing the use of renewable energy 
and  energy  efficiency.  The  ENPI  -  Neighbourhood  Investment  Facility  co-financed 
several projects in this area including the development of a renewable energy/energy 
efficiency master plan and the development of wind and solar power plants. The EU 
and Egypt continued to cooperate on strengthening the nuclear industry regulator. 

Regarding  climate  change,  two  new  Clean  Development  Mechanism  projects  were 
registered  at  UN  level,  bringing  the  number  of  registered  projects  to  nine.  Egypt  is 
encouraged to build capacity and engage in the new carbon market mechanism to be 
developed following the UN Framework Convention on Climate Change Conference 
of the Parties 17. Egypt is also encouraged fully to implement the Cancun and Durban 
agreements  and  in  particular  devise  a  low  carbon  development  strategy  including 
updated information on targets or actions to implement.  

On the environment, the government adjusted its targets for the water sector reform 
in the light of the political situation. The new targets will be supported via a EU sector 
policy  support  (EUR  120  million  project  for  the  second  phase  of  the  water  sector 
reform programme). They are based on the National Water Resource Plan 2005-2017 
and  the  water  and  wastewater  sector  development  policy.  The  EU  has  contributed 
improving water and sanitation programme in 4 governorates in the Nile Delta (EUR 
23  million)  through  a  Neighbourhood  Investment  Facility  project  that  targets  the 
construction  and  rehabilitation  of  water  and  waste  water  infrastructure.    Egypt 
restarted talks with its Southern neighbours, including Ethiopia and Sudan, on sharing 
the  water  resources  of  the  Nile.  There  were  no  significant  developments  as  regards 

13

 
 
ratifying  the  amendments  to  the  Land-Based  Sources  Protocol  and  the  Emergency 
Protocol of the Barcelona Convention for the Protection of the Marine Environment 
and  the  Coastal  Region  of  the  Mediterranean.  In  the  context  of  multilateral 
environmental processes, Egypt frequently took positions contrary to those of the EU. 

In  the  field  of  civil  protection,  Egypt  intensified  the  cooperation  with  the  countries 
from the region and the exchange of best practices with the EU in the field of disaster 
prevention, preparedness and response through its participation in the EU Programme 
for Prevention of, Preparedness for, and Response to natural and man-made disasters 
(PPRD South). 

As regards the information society sector, progress in regulatory reform has halted. 
Vodafone Egypt and other network operators were instructed on 28 January 2011 to 
suspend  services  in  selected  areas.  Mobile  communications  were  suspended  for  two 
days  and  internet  for  around  a  week.  Most  network  operators  complied  with 
government instructions, but some smaller internet service providers kept the internet 
connection up and running.  While network operators are operating under local law, it 
is  clear  that  any  decision  to  deny  access  to  the  internet  can  represent  a  violation  of 
freedom of expression.  

On  research  and  innovation,  Egypt  continued  to  implement  its  reform  strategy 
(2007-12).  The  2nd  phase  of  the  Research  Development  and  Innovation  Programme 
(RDI-II)  was  officially  launched  in  June  2011  with  an  EU  contribution  of  EUR  20 
million.    Egypt's  participation  in  the  European  framework  programme  for  research 
(FP7)  increased  in  2011.  By  mid-October  2011,  Egypt  had  signed  66  grant 
agreements, involving 85 participants from Egypt and benefiting from an EU financial 
contribution  of  around  EUR  10  million.  The  thematic  areas  which  attract  the  main 
interest  are  Environment  (including  Climate  Change),  Food,  Agriculture,  Fisheries 
and  Biotechnologies,  Marie-Curie  Actions,  Health  and 
Information  and 
Communication Technologies. 

7. 

PEOPLE TO PEOPLE CONTACTS, EDUCATION AND HEALTH 

Egypt’s  education  system  is  in  need  of  structural  reforms,  including  increased 
flexibility and efficiency in governance and institutional management. The last set of 
planned education sector reforms to improve the quality of educational services and 
learning outcomes, and the effective management of public spending in education) -  
supported by the EU through a EUR 140 million sector budget support programme - 
were postponed by one year. Progress in other areas slowed, including the review of 
compulsory education in Egypt and the reform of secondary education (including the 
access to university) slowed down.    

Cooperation in the context of EU higher education programmes continued.  In 2011, 
three new partnerships involving twelve Egyptian higher educations institutions were 
selected under the Erasmus Mundus programme.  Mobility schemes for 240 students 
and  staff  from  Egypt  are  foreseen  (including  166  mobility  schemes  which  were 
financed  out  of 
the  European 
Neighbourhood  Policy  review).  In  relation  to  university  cooperation,  four  additional 
Tempus  IV  projects  involving  Egypt  were  selected,  in  line  with  the  results  of  the 
previous year. They concern the development of joint degrees in mechatronics, clean 

the  additional  EU  funding  allocated  after 

14

 
 
energy, the creation of e-laboratories or the development of professional guidance in 
universities.  In  the  four  calls  for  proposals  under  Tempus,  Egyptian  applications 
represented  almost  10  %  of  all  applications  from  all  countries.  The  Tempus 
programme helped create links between higher education institutions and the world of 
work, and in promoting the principles of the Bologna Process. Twenty-three Egyptian 
higher  education  institutions  and  20  individual  researchers  benefited  from  Marie 
Curie Actions, aimed at fostering international research collaboration. However, this 
was only a fraction of the national needs.  

On  culture,  the  25  January  Revolution  was  a  trigger  for  Egypt  to  start  discussing 
reform of the audiovisual sector. Support has been provided to improve capacities of 
young professionals of the sector to access funding and international markets though 
the Euromed Audiovisual III Programme.    

The  number  of  young  Egyptians  and  Egyptian  youth  workers  benefitting  from 
exchange  opportunities  offered  by  the  Youth  in  Action  programme  increased  from 
108  in  2010  to  140  in  2011.  16  new  projects  were  approved  in  the  context  of  the 
Euromed Youth IV Programme in 2011 in Egypt. 

Egypt pursued health sector reform, with EU assistance (EUR 198 million under two 
programmes),  in  particular  by  further  rolling  out  its  “Family  health  model”  for 
primary health care. Institutional changes included the merger of two ministries into a 
ministry  of  health  and  population.  Egypt  established  a  new  committee  that  should 
finalise  a  draft  health  insurance  law.  The  EU  and  Egypt  continued  health  sector 
dialogue, particularly in Cairo. Egypt participated in the EU supported ‘Episouth Plus’ 
project aimed at increasing health security in the Mediterranean region and South East 
Europe.  

15