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Cablegate: Preparing for the Annual Review of the Fta

VZCZCXRO9752
RR RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHRB #0571/01 0890922
ZNR UUUUU ZZH
R 300922Z MAR 07
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 6198
INFO RUEHCL/AMCONSUL CASABLANCA 2840
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHLO/AMEMBASSY LONDON 3253
RUEHFR/AMEMBASSY PARIS 4573
RUEHNK/AMEMBASSY NOUAKCHOTT 3453

UNCLAS SECTION 01 OF 03 RABAT 000571

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR NEA/MAG, EB/IFD/OIA and EB/TPP/BTA
STATE PLEASE PASS TO USTR DOUG BELL AND MARY LATIMER
USDOC FOR ITA/MAC/ONE ROTH
TREASURY FOR OASIA
USDA FOR ITP PAT SHIEKH AND BARBARA CHATTIN

E.O. 12958: N/A
TAGS: EINV ETRD EFIN EAGR PGOV MO
SUBJECT: PREPARING FOR THE ANNUAL REVIEW OF THE FTA

REF: A. RABAT 00304
B. RABAT 00405
C. Casablanca 00057

Sensitive but unclassified. Please protect accordingly.

1. (U) Summary and action request: With the envisioned May/June
time frame for the first annual review of the bilateral Free Trade
Agreement fast approaching, post recommends renewed engagement in
coming months with the GOM on key outstanding issues from the first
year of the agreement, including transshipment, agricultural quotas,
and accelerated reduction of textile tariffs. Moroccan thinking
about the overall "Joint Committee" meeting is still in its early
stages, but our contacts believe that the formal meeting should
"accentuate the positive" and leave detailed discussion of these
issues to preparatory meetings, preferably of the Agricultural and
Market Access committees provided for in the Agreement. Moroccan
readiness to celebrate and give a high profile to the anniversary is
clouded by discrepancies in bilateral trade data: while U.S.
statistics show an 18 percent increase in Moroccan exports to the
U.S. to USD 521 million, Moroccan trade figures show a decline over
2005 figures to USD 250 million. We are working with our Moroccan
counterparts to understand and explain this divergence. End
Summary.

--------------------------------------------- -----
First Joint Committee Meeting Since Implementation
--------------------------------------------- -----

2. (SBU) Econ Counselor and Econoff met on March 26 with the MFA's
FTA expert Houda Marrakchi to follow up on her recent contacts with
USTR and discuss preparations for the first Joint Committee meeting.
Marrakchi stressed that she has not yet received guidance from
Minister-Delegate Fassi-Fihri, but anticipated that he would lead
the Moroccan delegation. Three locations were mentioned as possible
venues: Washington, DC; Rabat, Morocco; and North Carolina.
Although Washington would be the most convenient for the U.S.
delegation, Marrakchi agreed that the event would not receive the
same degree of publicity as it would in Morocco. North Carolina was
suggested because of an upcoming MEPI-funded Moroccan textile
sourcing mission there in June, which the Joint Committee could
build upon. Regardless of the location, Marrakchi agreed that
approximately 45-days notice would be required to properly
coordinate the meeting.

-------------------------
Accentuating the Positive
-------------------------

3. (SBU) Marrakchi emphasized her belief that the Joint Committee
meeting should accentuate the positive, and leave areas of
disagreement to be addressed by technical committees and ongoing
informal discussions. She expressed hope that difficult issues
could be considered in the run-up to the annual review by the
technical committees created by the agreement: i.e., the Market
Access Committee could consider transshipment, GSP preferences, and
accelerated reduction of textile tariffs, while the agricultural
committee could address the full range of agricultural issues and
build on recent video-conferences between U.S. and Moroccan
officials that have focused on wheat quota issues.

4. (SBU) Marrakchi did flag one concern that she indicated might
influence how high a profile Morocco wishes to accord the
anniversary event: Moroccan trade figures differ significantly from
U.S. trade data. Far from showing an increase in Moroccan exports
to the U.S. (U.S. trade data complied by OTII/Dept of Commerce show
Moroccan exports to the U.S. increased 18 percent to USD 521
million), Moroccan data compiled by the Office des Changes shows
2006 Moroccan exports to the U.S. below USD 250 million, slightly
below their 2005 level. Marrakchi acknowledged that the Office des
Changes data was contrary to Ministry of Industry data that showed
Moroccan textile exports to the U.S. in 2006 increased 52 percent
over 2005.

5. (SBU) Comment: Post believes the large disparity in trade data
reflects how Moroccan customs classifies Moroccan goods that are
shipped to European distributors before transshipment to the U.S.
Europe remains Morocco's principal trading partner and the majority

RABAT 00000571 002 OF 003


of Moroccan industrial goods are shipped to European distributors.
Even though these goods eventually arrive in the U.S., Moroccan
customs classifies the commerce as between Morocco and Europe. End
Comment.

----------
Key Issues
----------

6. (SBU) The differing trade figures highlight one of the most
significant differences of interpretation in the agreement: namely,
what constitutes permissible transshipment under Chapter 5 "rule of
origin" provisions. Morocco continues to hew to a restrictive
interpretation, whereby transshipment via European ports is
permissible, the shipment must be dispatched following an order by a
Moroccan customer and cannot be pre-staged by U.S. exporters in
European facilities. In our March 26 meeting, Marrakchi argued that
the limiting provisions were introduced by U.S. negotiators, and
that Moroccan officials did not believe the text of the agreement
supported the U.S. interpretation, whereby transshipment was
permissible so long as a product does not enter into commerce or
advance in value.

7. (SBU) Although Morocco's Parliament passed legislation in
December 2005 (Law 31/05) that fulfilled its intellectual property
commitments under the FTA, enforcement of the provisions remains in
issue. Recently, Procter and Gamble North West Africa, which
markets a product called "Always," reports difficulty in blocking
counterfeit goods from entering Morocco and that the Moroccan
Trademark Office (OMPIC) has issued trademarks for counterfeit
products marketed as "All Well's." While post continues to address
these instances on a case-by-case basis, Moroccan enforcement of the
FTA's IPR provisions remains an issue, as reported in Ref C.

8. (SBU) If more liberal interpretation of transshipment provisions
and effective IPR protection are key U.S. concerns, Morocco remains
focused on its loss of GSP preferences for certain textile and
agricultural products and its desire to accelerate reduction of
tariffs on textile inputs. In clarifying the Moroccan desire to
accelerate the FTA's tariff reduction schedule, Marrakchi explained
that between the end of FTA negotiations and its entry into force,
Morocco had made the reduction proposal to both the U.S. and the EU.
While the U.S. has not formally responded, the EU did so
immediately, and reached agreement with Morocco on a more
preferential tariff schedule. Marrakchi argued that as a result
many categories of U.S. raw goods are less competitive than their EU
counterparts.

9. (SBU) Marrakchi also clarified the Moroccan desire to restore GSP
benefits for certain Moroccan products, while admitting Morocco
could not agree to reciprocal treatment. She explained that Morocco
is not afraid of U.S. products entering Morocco in the affected
categories, but is afraid that the EU will seek to take advantage of
any concession Morocco accords the U.S. Marrakchi suggested that
these issues, together with other market access issues, be addressed
by a meeting of the agreement's market access committee in the
run-up to the Joint Committee meeting.

------------------------------------------
Opaque Moroccan Wheat Quota Administration
------------------------------------------

10. (SBU) As reported in Ref B, Moroccan implementation of wheat
Tariff Rate Quotas (TRQ) continues to hinder U.S. exports. At issue
is agreement on the timing and method for calculating the annual
size of the TRQ, Morocco's failure to publish a schedule of tenders
for use by both importers and exporters, the country's failure to
re-tender unallocated quota from previous tenders, and the GOM's
failure to accept all bids from importers who are willing to pay the
negotiated duty under the TRQ. Marrakchi commented that Morocco's
stance on re-tendering is unlikely to change, as it is also the
approach applied under its agreement with the European Union. She
agreed, however, that it would be useful for the formal Agricultural
Committee envisioned by the agreement to meet in the near future to
consider the full range of outstanding agricultural issues.

11. (SBU) Comment and action request: The Moroccan public is still
largely unfamiliar with the U.S.-Morocco FTA, Moroccan economists

RABAT 00000571 003 OF 003


remain largely undecided on its utility, and Moroccan businesses are
just beginning to learn how to exploit it. We have launched an
aggressive public campaign to highlight the positive results of the
first year of the agreement, as reflected in American statistics.
Nonetheless, respected Moroccan business journals continue to
publish anti-FTA articles and will most certainly use the misleading
Moroccan Office des Changes export statistics to their editorial
advantage. As the Moroccan bureaucracy increasingly focuses on the
Joint Committee meeting, we believe now is the moment to renew our
engagement with Moroccan counterparts on the nagging issues outlined
above, and to ensure that the Joint Committee meeting itself retains
the positive focus both sides desire. End Comment.

BUSH

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