Egypt - New Customs Law

The UK P&I Club’s correspondents in Egypt, Middle East Survey & Control Office (MESCO), would like to draw Members’ attention to the new Customs Law which has come into effect in Egypt.

Egypt’s new Customs Law, Law no. 207 for the year 2020, entered into effect on 12th November 2020. This new law incorporates and amends the rules and procedures of the old law, Law no. 66 for the year 1963. The old law and the customs exemptions law no. 186 for the year 1986, have therefore been revoked.

The new law aims to encourage foreign investment, unify and simplify the procedures relating to international trade, streamline customs release operations and procedures, and improve the customs tax refund process. The ultimate objective however is to increase exports of Egyptian products to the international market. The law also seeks to reduce corruption and has clarified the penalties on violators and smugglers. It also introduces a revised post clearance audit process aimed at controlling the import and export activity more efficiently, promoting faster release of goods at the borders. The new law brings in many controversial changes and amendments, especially on matters addressing the carrier’s liabilities.

In this article, we summarize the key provisions of the new law and provide our comments on the individual Articles.  This article is to be read together with the copy of the new law appended below.

General

• The new Customs Law reduces the number of documents exporters and importers have to submit to the Egyptian Customs Authorities (“ECA”) from 11 under the old law, to 6.  Soft copies of the documents are now also acceptable.

• To reduce corruption, a risk management system is introduced to control the release of goods in accordance with established rules. Customs procedures will be expedited and simplified. Settlement of customs dues in monthly instalments has been introduced for imports of machinery and industrial equipment and to production lines to encourage growth in the manufacturing sector.

• New provisions for prior clearance of goods - which was only discreetly available under the old law for major regular customer – are introduced.

• New regulations for Customs procedures will lead to a reduction in the high number of Ministerial decrees (by law) issued by officials to organize the daily activities of the Customs Authority.

• Articles 51-57 introduce for the first time the work of Customs Clearance Agents, defining their role, setting controls for their practice and implementing their authority, as well as setting out the penalties they may impose when dealing with violations.

• The previous four-month period for Owners of unclaimed goods to reclaim their goods has been reduced to just one month. After this period, the ECA shall have the right to sell the goods or assign them to any government authority or agency without charge.

• Article 39 requires the importer or his agent to present documents relating to the goods to the Customs Authority before the goods are shipped so that the goods can be marked with an initial customs registration number. This initial registration number must be notified to the shipper for it to be inserted into all shipping documents for any goods imported, failing which, the goods will not be allowed to be discharged at Egyptian ports, and will have to be re-shipped elsewhere at the expense of the carrier. This Article ignores the fact that many shipments, when originally shipped to any port, were not destined for a specific party. The receiver could be designated or specified during the voyage.

• The new law emphasizes the carrier’s responsibility for validating the description of the goods entrusted to them for carriage and makes the carrier a primary responsible party should there be any discrepancy in the description following an inspection of the cargo. This seems to be unjust and impractical in cases of containerized cargoes, since containers are stuffed by the shippers without any supervision or intervention by the carrier. The shipper and the cargo interests should therefore be solely liable for any inaccuracy in the cargo’s description. The new law also provides that the carrier shall be liable for any damage to seals affixed on containers and bear the risks associated with the discharge and/or storage of containers at yards other than yards designated by the Customs.

• The most controversial provision in the new law however is if the importer fails to complete the customs’ formalities to clear out the cargo, the carrier shall become liable for re-shipping the goods or dispose of them at the carrier’s own expense.

Comments on the new law

CHAPTER ONE - Definitions

Article 1 (pages 4-7)

This chapter sets out the definitions for all the terms in the new law. In contrast to the old law, the new law defines many more terms. This chapter does not address conflicts with the local Maritime Law that the new definitions give rise to.  The new law defines the Carrier as the Owner of the means of transport, while omitting the fact that the carrier could also be the entity entering into the contract with the shipper; e.g. a Non-Vessel Owning Carrier. Furthermore, there is a clear conflict between the agent, the shipping agent and the cargo interests’ agent.  The Article gives the same definition under the law to these agents, when in fact these agents have no relationship at all.

CHAPTER TWO - The Customs Department and its employees - (Section Two) - Employees of the Department

Articles 4, 5, 6, 7 (pages 8-9)

These Articles define and expand upon the powers of the Customs department and its employees: -

-   Employees are authorised to inspect persons and goods without any prior permission

      from the relevant authorities.

• Employees are authorised to board all means of transport.
• Employees are authorised to track goods from suspected smuggling when the goods leave the customs office or control, and in all cases shall have the right to seize smuggled goods and the means of transport used in the smuggling and also to arrest those accused of smuggling.

These Articles give the Customs employees powers over and above the usual scope of powers that Customs and customs officials have. Officials who hold judicial apprehension/ arrest powers may seek the assistance of other authorities. In our opinion, these powers which did not exist under the old law, are far too wide.

Article 8 (page 9)

Five years from the date of release is a very long period for the maritime carrier to retain the relevant paperwork and records for all shipments undertaken. The law does not specify whether hard or soft copies will be required. This will inevitably escalate costs in relation to archiving.

Article 9 (page 10)

This Article granting customs officials authority to enter the premises of shipping agencies at any time and without obtaining a court order, to review papers, records, documents and files related to customs operations, is a great concern. This right must be better regulated to protect the privacy of these companies.  If the perusal of the documents reveals discrepancies, the new law legalizes the issue of a subsequent review i.e. the Customs Authority will have the right to review documents related to customs operations with the possibility of recalculating the taxes and fees due. According to the provisions of the Egyptian Trade Law, the merchant is required to keep mandatory commercial books for a period of at least five years starting from the date of closing the book. A recalculation of taxes and fees may result in the shipowner being found liable for any shortfall in payment in respect of a shipment completed five years previously. The implications for shipowners are serious.

CHAPTER FIVE - Special Customs Systems (Section One) - Transit Cargoes

Article 25 (page 19)

This Article over-expands the temporal and spatial scope of the maritime carrier’s responsibilities, increasing the burdens and risks on him. Under the old law, the responsibilities of the maritime carrier ended with the end of the voyage.

(Section Eight) - Temporary Release

Article 34 (pages 24-25)

This Article equates the treatment of an empty container with the treatment of normal cargoes. Arguments over the application of this Article are currently ongoing between shipping lines and the Customs Authorities.

CHAPTER SIX Customs Procedures (Section One) - Pre-clearance / Advance Clearance

Article 39 (pages 26-27)

This Article defines completely new procedures that may be difficult to implement in practice. The Article avoids the fact that many shipments coming to Egypt are linked through shipping agents.  Importers may not be directly involved in the shipment process especially in “LCL” (Less than Container load) shipments. The new requirements may cause a conflict of responsibilities between the “end importer” and the freight forwarder responsible for the documentation process. Moreover, the application of these provisions in practice nullifies “to order” and “to bearer” bills of lading,  contradicting Article 203 of the Egyptian Maritime Trade Law, which states that “a bill of lading is drawn up in the name of a specific person, order, or bearer”.

(Section Three) – Cargo Manifest

Article 46 (page 29)

A completed Cargo Manifest signed by the Master must be submitted to the Customs Authority. If cargoes were loaded without the consignee’s name, the carrier will be liable for any reshipment costs. This Article emphasizes that it is the responsibility of the carrier to verify the accuracy of the goods’ description, and thus holds the carrier responsible if the description is inaccurate. A new controversial Article has also been introduced that prohibits the carrier from transporting imported goods by importers who are not registered in the customs dealers registry. In addition to that, the new law obliges the carrier to re-ship the cargoes or destroy them at his own expense if the importer / recipient  fails to complete the customs procedures for removing the cargo. The carrier is here charged with additional responsibilities that did not exist under the old law.

Article 47 (pages 30-31)

This Article must be reformulated to allow exceptions to the 48-hour rule because as drafted, it fails to take into account, e.g. short trips by ships arriving from neighboring ports / countries, and the fact that most Egyptian exports are fresh fruits and vegetables often loaded on board well within 48 hours of the vessel’s departure. In our opinion, a 24-hour period is more than enough. Furthermore, discrepancies could arise on initial weights advised.

(Section Six) - Cargo Inspection and withdrawal

Article 62 (pages 36)

In many cases, there is no owner of the rejected cargo as he either keeps a low profile or disappears. Regardless of whether this party receives the delivery order, it is unclear who bears the execution expenses.

Article 66 (pages 37-38)

The one-month period leaves little time for the owners of these cargoes to be informed of the status of the cargoes, and to arrange and carry out their disposal. It also puts a lot of pressure on the shipping lines to push customers to collect their cargoes, which could eventually lead to more abandoned cargoes and more expenses that would have to be borne by the ship’s interests.

CHAPTER NINE - Crimes and Penalties

The following highlight the increase in penalties from the old law to the new law. The crimes remain the same as under the old law.

Note: Below USD figures are based on the Exchange Rate of 1 USD = 15.73 EGP on 16.12.20

Article 71 (page 40)

Previously Article 114 of the old law. The fine is increased from 500 Egyptian pounds (31 USD) to 30,000 Egyptian pounds (1,910 USD).

Article 72 (page 41)

Previously Article 115 of the old law. The fine is increased from 200 Egyptian pounds (15 USD) to 10,000 Egyptian pounds (640 USD).

Article 73 (page 41)

Previously Article 117 of the old law. The fine is increased from 25% of the customs tax exposed to loss to 50% of the customs tax exposed to loss.

Article 74 (pages 41-42)

Previously Article 118 of the old law. The fine is increased from a quarter of the customs tax exposed to loss to the full amount of the customs tax exposed to loss.

Article 76 (page 42)

Previously Article 119 of the old law. The fine is increased from not less than the minimum for fines and compensation to half of the fines stipulated in the above-mentioned Articles, provided the same is paid in full before the issuance of the final criminal order.

Article 78 (pages 44-45)

Under Article 118 of the old law, smuggling was punished with imprisonment and/or a fine of no less than 500 EGP (31 USD), not exceeding 10,000 EGP (640 USD). The penalty has been increased to imprisonment and/or a minimum of 10,000 EGP (640 USD), not exceeding 100,000 EGP (6,380 USD).

Article 80 (page 45)

The application of this Article will lead to dire consequences for shipping agencies, as the issuance of such decisions will bring the work of shipping agencies at all customs outlets to a halt, including taking delivery of parcels arriving at airports. The Article violates a fixed provision in the Egyptian Penal Code to the effect that the accused is innocent until his proven conviction. The text in its current form prevents all dealings with the accused until a final judgment of acquittal is issued. This article is also contrary to the text of Article 96 of the Egyptian Constitution and Article 11 of the Universal Declaration of Human Rights.

Article 82 (page 46)

We believe there is no automatic relationship between the crime of smuggling, the means of transport (ships) and the tools used (containers) unless the ship or the container was prepared for smuggling, and this provision will cause issues in terms of confiscation of assets.

Finally, the increase in the fines imposed for a violation is excessive, considering that such violations are common as they may occur without intent, and cannot always be fully avoided.

CONCLUSION

Based on our analysis of the Articles in the new law, how the new law will be applied will only become clearer during the implementation stage. What is clear thus far is that the new law places a heavier burden of liability on the carrier in circumstances that are often beyond his control. This has resulted in objections being raised against certain provisions in the new law. It is anticipated that forthcoming amendments which take into account all aggrieved parties’ concerns will allow for a smoother transition. In the interim, until the new executive regulations are issued (expected to be within the next six months), the existing executive regulations shall continue to be applied - insofar as possible -in a manner that does not conflict with the provisions of this new law.

We hope the above has given you an informed introduction to the new Customs Law. We remain at your disposal should you have any queries or concerns.

The UK P&I Club would like to thank Middle East Survey & Control Office (MESCO), for preparing the above article for the Club.