Source: EURLEX
Language: en
Format: md

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# 52012SC0113

**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 /\* SWD/2012/0113 final \*/**

  

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 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.

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 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.

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.

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.

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.

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 billion in 2004 to
its highest ever level of €23,3 billion in 2011. In 2011, EU imports from 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.

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.

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.

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 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 information
society, research and innov ation

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
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
additional EU funding allocated after 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
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.

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