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Cablegate: Morocco Fta Annual Review

VZCZCXRO8458
RR RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHRB #1397/01 2481120
ZNR UUUUU ZZH
R 051120Z SEP 07
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 7326
INFO RUEHCL/AMCONSUL CASABLANCA 3428
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHLO/AMEMBASSY LONDON 3369
RUEHFR/AMEMBASSY PARIS 4735
RUEHNK/AMEMBASSY NOUAKCHOTT 3558

UNCLAS SECTION 01 OF 03 RABAT 001397

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR NEA/MAG, EB/IFD/OIA and EB/TPP/BTA
STATE PLEASE PASS TO USTR P BURKHEAD 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: MOROCCO FTA ANNUAL REVIEW

REF: RABAT 00405

Sensitive but unclassified. Please protect accordingly.

1. (U) Summary: During his August 28-31 visit to Morocco, Assistant
U.S. Trade Representative (USTR) Shaun Donnelly emphasized the
mutual benefits of the U.S.-Morocco Free Trade Agreement (FTA) and
outlined U.S. thinking regarding preparations for the first meeting
of the Joint Committee later this year. Although Donnelly heard a
predominantly positive Moroccan assessment of the agreement, he also
reviewed outstanding issues that have arisen since the FTA's
implementation on January 1, 2006. Foremost among these issues are
a significant difference in bilateral trade data, disagreement on
the definition and application of transshipment, and Moroccan
administration of cereal quotas. End Summary.

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

2. (U) Assistant USTR for Europe and the Middle East, Shaun
Donnelly, Assistant USTR for Trade Capacity Building, Mary Ryckman,
and Director for European and Middle Eastern Trade Affairs Paul
Burkhead met with GOM officials and Moroccan business
representatives on August 30 in preparation for the first Joint
Committee meeting since implementation of the U.S-Morocco FTA on
January 1, 2006. The USTR team first met with approximately 20
Moroccan officials representing the various ministries involved with
implementing the FTA, which was led by MFA's FTA expert Houda
Marrakchi.

3. (SBU) USTR officials then met privately with Ambassador Abdallah
Salah Eddine Tazi, Director of American Affairs in the Ministry of
Foreign Affairs (MFA). Tazi emphasized the importance of the FTA as
the most visible symbol of U.S.-Moroccan cooperation and said that
Morocco was open to the Joint Committee convening in either the U.S.
or Morocco. He remarked that the FTA, together with similar
agreements with the European Union and Turkey, demonstrated
Morocco's commitment to reform, transparency, and international
competitiveness. Tazi acknowledged that the Ministry had been
focused earlier in the year on other issues, but predicted that the
new Moroccan government would be ready to engage on the Joint
Committee meeting following its installation in mid-October.
(Comment: Donnelly et al were originally scheduled to meet with
Taib Fassi Fihri, Minister Delegate to the Minister of Foreign
Affairs, who was called away to France in preparation for an
upcoming visit by President Sarkozy. Fihri was the principal
negotiator for the FTA, is in many respects the most important
player within the GOM on U.S. issues, and will most likely represent
Morocco in the Joint Committee. Tazi's insistence that discussion
of the Joint Committee meeting await the formation of a new
government likely means that we may not be able to hold a meeting in
2007. End Comment.)

4. (SBU) Both Tazi and Marrakchi emphasized their 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. Ambassador Donnelly agreed,
suggesting that difficult issues be considered by the applicable
technical committees in the run-up to the annual review: 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.

--------------------------------------------
Principal Issue - Differing Trade Statistics
--------------------------------------------

5. (SBU) The most significant issue raised during the GOM meetings,
and one that could influence how high a profile Morocco wishes to
accord the Joint Committee meeting, was the significant difference
in bilateral trade statistics following the FTA's implementation.
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

RABAT 00001397 002 OF 003


compiled by the Office des Changes shows 2006 Moroccan exports to
the U.S. fell below USD 235 million, a 19 percent decrease from
2005. Both Donnelly and Tazi agreed on the urgent need to reconcile
the differences. Marrakchi noted that this Office des Changes data
is also contrary to Moroccan Industry Ministry data that showed
Moroccan textile exports to the U.S. in 2006 increased 52 percent
over 2005.

---------------------------------------------
U.S. Issues - Transshipment and Cereal Quotas
---------------------------------------------

6. (SBU) The differing trade figures also tie into one of the most
significant outstanding differences in interpretation of the
agreement: namely, what constitutes permissible transshipment under
Chapter 5 "rules of origin" provisions. The U.S. interprets FTA
requirements to mean that as long as a product does not enter into
commerce or advance in value, it remains a direct shipment, even if
it includes transshipment and pre-staging by U.S. exporters in
European facilities. By contrast, Moroccan customs officials have
continued to hold to a much more limited interpretation, arguing
that transshipments under the FTA must be dispatched following an
order by a Moroccan customer and cannot be pre-staged by U.S.
exporters in European facilities. (Note: This key point of
disagreement was last addressed by a DVC and letter from Assistant
USTR Donnelly to Director General of Customs Abdellatif Zaghnoun in
July 2007, which Moroccan officials are now studying. The Moroccan
side indicated they would reply to the letter in the near future.
End Note.)

7. (SBU) As reported in reftel, Moroccan implementation of wheat
Tariff Rate Quotas (TRQ) hindered U.S. exports in 2006. At issue
was 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. Although most of these issues remain
in 2007, the radical increase in world wheat prices and the
shortfall in the Moroccan local supply of wheat have resulted in
more U.S. wheat being sold to Morocco than in 2006. Although the
premium normally paid by importers for licenses to import at
preferential rate under the TRQ was suspended in July 2007, the lack
of transparency of the Ministry of Agriculture in the management of
the quota, together with recurring abrupt changes to and
announcement of wheat duties, continues to add considerable risk to
importers. Donnelly emphasized the importance of a meeting of the
Agricultural Committee of the FTA, in advance of the Joint
Committee, to consider the full range of these and other
agricultural issues. (Note: In private discussions with econoff,
Marrakchi acknowledged 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. Without elaborating, Marrakchi
also suggested that a separate subcommittee on sanitary and
phytosanitary measures (SPS) might be useful. End Note.)

--------------------------------------------- ------
Moroccan Issues - GSP and Textile Tariff Reduction
--------------------------------------------- ------

8. (SBU) During the roundtable meeting with GOM officials, Donnelly
and Ryckman heard first-hand of Morocco's desire to accelerate
reduction of textile tariffs and Moroccan desire to restore GSP
preferences for certain textile and agricultural products. (Note:
Following the end of FTA negotiations, Morocco made the textile
tariff 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. End Note.) Donnelly explained that the textile tariff
treatment agreed in the FTA negotiations represented the limit of
what the U.S. could offer at this time. Textile trade is a
sensitive issue with many stakeholders and accelerated tariff
reductions would not be possible at this time. He promised a formal
reply upon his return to Washington, while making very clear that
the answer would simply reflect the realities he had just laid out.
He suggested the market access committee meet to discuss both
requests in the run-up to the Joint Committee meeting.

RABAT 00001397 003 OF 003

9. (SBU) Comment: Post has worked aggressively through 2007 to
highlight the positive results of the first year of the agreement,
as reflected in U.S. trade statistics, but the effort has been
hampered by the fact that Moroccan figures are much less positive.
An editorial and a lengthy article in a leading business daily just
this last week argued that the agreement has not delivered the
promised results, and that "one is obliged to question it" as a
result. Post's effort to obtain funding through the Commercial Law
Development Program (CLDP) for a census team to visit Morocco by the
end of the year to engage in a "mirroring" exercise to reconcile the
differing figures, which received support from the USTR team, will
thus be key to enabling us to continue to tell a positive story that
resonates with the Moroccan public and to winning Moroccan support
for a high profile joint committee meeting. End Comment.

RILEY

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