Consultancy- International Consultant for Improving

**Consultancy
- International Consultant for Improving the Duty Drawback System in Egypt-USAID TRADE**

**Project Overview and Role**:
Palladium was awarded the USAID/Trade Reform and Development in Egypt (TRADE) Activity contract, which has a 5-year timeframe and a ceiling of $36.3 million. The goal of the TRADE Activity is to increase Egypt’s international trade by increasing exports from SMEs, and in particular New and Expanding Export-Ready Enterprises (NEEREs). This will be achieved by addressing the constraints that impede the competitiveness of Small and Medium-sized Enterprises (SMEs).

In order to achieve the Activity’s goal (increasing exports in selected sectors), Palladium must attain the following three Results:
1)Enhanced Export Capacity of SMEs, in particular New and Expanding Export-Ready Enterprises (NEEREs)in Selected Sectors
2)Strengthened Public and Private Trade-Support Institutions (e.g., Trade
Associations, Export Councils, etc.); and
3)Improved Trade and Investment Policy, Regulatory and Institutional Environment

***Primary Duties and Responsibilities**:
**Background on the assignment**
The Egyptian Customs Authority ‘ECA’ is one of the authorities operating under the Ministry of Finance (MoF) of Egypt. The agency’s mandate is to collect tariff duties and fees on imported products and to control the movement of imported goods to Egypt. An essential role of the agency is to safeguard the country's revenues by preventing smuggling and ensuring the payment of customs tariffs and other duties. Additionally, the authority plays a crucial role in overseeing and managing warehouses and storage facilities. ECA is mandated in coordination with other regulatory authorities to control imported and exported goods. The Customs Law provides for some arrangements that aim at encouraging and promoting Egypt’s exports, including the Duty Drawback system. This system grants exemption from duties and taxes for the production of goods intended for export and is widely utilized in Egypt. ECA may allow the use of this system in conjunction with other procedures, such as temporary admission. Under the Duty Drawback system, imported goods are used to process or manufacture goods for export by domestic industries where use of domestic labor and processing or manufacturing of goods add value to the finished goods for export. The repayment of duties and taxes paid on the imported goods enables domestic industries to offer the goods at competitive prices on international markets. However, what practically happens in Egypt is that the system operates in a manner that adds barriers to exporters and consumes more time than necessary, as outlined in the Business Process Analysis (BPA) reports conducted by the project. Among the general Bottlenecks in the current Duty Drawback system pointed out by the BPA are the following:
The real problem lies in the customs’ request to obtain an Industrial Control Authority’s letter for raw materials to be used in production, for instance, yarn is imported by the company without prior knowledge of the model that this yarn will be used in manufacturing. The company builds up a stock of yarn in its warehouse that allows it to respond to any future order quickly. Thus, it is impossible to determine the wastage rates at the time of importing the yarn.
The process for obtaining the ICA letter must be completed during production and before export.
Delays in calculating allowances often arise from the administrative logistics, which involve significant back-and-forth communication, particularly when there is a disagreement over the allowance amounts. In such instances, multiple visits by different audit committees are necessary to resolve disputes, posing a significant challenge for small exporters and exacerbating the problem.
According to the executive regulations of the customs law to benefit from the drawback system, exporters must import the raw material themselves, which automatically limits the capability of small exporters to benefit from this system, since they sometimes resort to importing companies to import the required raw material.
Among the proposed corrective actions and recommendations of the BPA is the complete revision of the drawback system as per South Korea and Turkey’s experiences:
Exporter would calculate the allowances as per several approved predetermine formula (acknowledged internationally).

**Objectives**:
The system is associated with a process of measuring “allowances”. This task is carried out by the Industrial Control Authority - (ICA), an entity affiliated to the Ministry of Trade and Industry, through visits to exporting enterprises by technical committees. The process is complex and if not completed in the correct sequence the export enterprise cannot retrieve the drawback incentive or release its letter of guarantee associated with the temporary admission system. The process can be tedious and take a long time given the limit