Lessons from the confusing price of Egyptian whiskey
There are the tariffs, there are the prohibitive tariffs and then there are the Egyptian tariffs on whiskey. It’s arguably the most fascinating import tax ever, in large part because nothing makes sense about it.
Egypt’s bound tariff on whiskey, the cap it promises the World Trade Organization (WTO) not to exceed, is 3,000 percent. To put that in perspective, India’s 150 percent bound tariff on whiskey is the second in the world. It’s all too easy to be mesmerized by a 3,000 percent tariff, but the real mystery is why Egypt bothered to set that rate – or any rate – as a bound cap. .
Fully 99.3% Egyptian tariffs are bound. This is impressive for any country, let alone a developing country. Car air conditioners are part of Egypt’s unbound tariffs, that is, this tariff line has no cap. Interestingly, Egypt’s tariff on these products is currently only 5 percent. Why would Egypt leave this seemingly inconsequential tariff unbound, but choose to bind its whiskey rate at 3,000 percent and then maximize it?
Bound rates reduce the risk of price volatility. Without a ceiling, a tariff could, in theory, go on forever. But Egypt is already there. Another problem arises when there is too much leeway between a country’s applied and bound rates. It’s called “tariff overrun, ”And this leads to uncertainty on the part of foreign exporters, who might decide to sell their goods elsewhere. Given that Egypt caps its applied tariff on whiskey, the government has no leeway to exploit. At 3,000 percent, however, that does little to reassure foreign exporters.
What is Egypt doing? Back in 2018, during a WTO review of Egypt’s trade regime, Europe asked if the government intended to “reduce the extraordinarily high tariffs on spirits?” Egypt replied that its “high tariffs” were used “for religious and cultural reasons”. Certainly, this is what most observers suspect to be the case. But is it true? No.
First of all. In terms of alcohol and pork, which Islamic law considers prohibited or haram products, Muslim countries do not forbid one or the other, and generally have similar import regimes to non-Muslim countries on both. Brunei and Pakistan have unbound tariffs on alcohol, for example, but apply applied rates of 0 percent and 90 percent, respectively, rather than 3,000 percent.
Egypt also has a rich history of beer brewing, dating back to the 19th century. Egyptian brewers were took into consideration technologically savvy and their products widely represented in national art and media. This story could explain the government’s protection of the beer industry against whiskey, and even Turkish coffee. But that does not explain the weight of the Egyptian tariff.
In fact, the whiskey is distilled in Egypt. Al Ahram, which has been around since 1897, produces a single malt whiskey called Devlin. This and other products can be found in line for purchase in Egypt, among other points of sale. Keep in mind that Egypt is reducing its tariffs for tourist sites (600 percent) and giving Ethiopia a privileged deal on spirits in general (2,700 percent).
The story does not add up. Egypt’s disproportionate tariff does not grow a domestic industry and does not fill government tax coffers. Instead, it prompts smuggling spirits that represent an important health risk.
What lessons to follow? First, Egypt’s 3,000 percent whiskey tariff is an outlier, but its lack of basis in the country’s political or economic reality is not. While Egypt is working on update its trade regulations, it should start with its whiskey tariff. Indeed, this single tariff has become a kind of shortcut to assess the Egyptian trade regime, and not for the better. The government constantly quotes its average non-alcoholic tariff, as if other countries are inclined to look beyond this tariff peak. There is little evidence that they are.
Second, the United States Section 232 tariffs on steel and aluminum are that country’s version of Egypt’s 3,000 percent whiskey tariff. They don’t compare in terms of size, mind you, but they do in terms of being backed up by an equally inexplicable narrative of hitting Allied imports under the guise of national security. With Sens. Pat ToomeyPatrick (Pat) Joseph Toomey Black Women Seek To Build On Gains In Upcoming Election Watch Live: GOP Senators Introduce New Infrastructure Proposal Sasse Rebuilt By Nebraska Republican Party For Impeachment Vote MORE (R-Pa.) And Mark Warren (D-Va.) reintroduce the Bicameral Congressional Trade Authority Act to restrict Section 232, what the United States can learn from Egyptian whiskey rates is that even a single tariff can cause lasting damage to reputation.
Marc L. Busch is Karl F. Landegger Professor of International Trade Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.