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Cablegate: U.S.-Morocco Fta: Imressive Start, Obtimistic Future

VZCZCXRO9359
PP RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHRB #0252/01 0791416
ZNR UUUUU ZZH
P 191416Z MAR 08 ZDK
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 8285
INFO RUEHCL/AMCONSUL CASABLANCA 3969
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/USDA FAS WASHDC 1060
RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHLO/AMEMBASSY LONDON 3550
RUEHFR/AMEMBASSY PARIS 4959
RUEHNK/AMEMBASSY NOUAKCHOTT 3690

UNCLAS SECTION 01 OF 03 RABAT 000252

SIPDIS

SIPDIS
SENSITIVE

DEPT FOR NEA/MAG, EB/IFD/OIA and EB/TPP/BTA
STATE PLEASE PASS TO USTR SHAUN DONNELLY, PAUL BURKHEAD, CAROYL
MILLER AND MARY LATIMER
USDOC FOR ITA/MAC/ONE MASON
TREASURY FOR OASIA
USDA FOR FAS CHUCK BERTSCH AND BOB MACKE

E.O. 12958: N/A
TAGS: EINV ETRD EFIN EAGR PGOV MO
SUBJECT: U.S.-MOROCCO FTA: IMRESSIVE START, OBTIMISTIC FUTURE


RABAT 00000252 001.2 OF 003


1. (U) The Joint Committee of the U.S.-Morocco Free Trade Agreement
(FTA) met in Rabat on March 13, 2008 for the first time since the
agreement's implementation on January 1, 2006. Assistant U.S. Trade
Representative for Europe and the Middle East, Shaun Donnelly,
headed the U.S. delegation, while Moroccan Minister of Foreign
Trade, Abdellatif Maazouz, led the Moroccan side. Both sides
accentuated the overall success of the agreement during its first
two years, and called for a reinvigoration of the subcommittee
process in order to resolve issues. Key issues raised by the U.S.
were Moroccan interpretation of permissible transshipment and
Moroccan administration of wheat quotas. Morocco's principal issues
were a desire to expedite U.S. phytosanitary approval of key
Moroccan agricultural products and improved customs cooperation.
The day following the plenary session, the U.S. delegation met with
representatives of the private sector, where they heard an
assessment very similar to that of the government.

--------------------------
Impressive First Two Years
--------------------------

2. (U) While noting discrepancy in bilateral trade statistics,
which an ongoing "Trade Merchandise Reconciliation" study is seeking
to explain, the two sides concurred that the agreement has had a
positive effect on trade, with bilateral commerce increasing 101
percent. U.S. exports to Morocco increased 155 percent from USD
527.5 million in 2005, to USD 1343 million in 2007. In spite of an
over 30 percent depreciation of the dollar in relation to the
dirham, Moroccan exports to the U.S. increased 38 percent, from USD
442.5 million in 2005, to USD 609.9 million in 2007.

3. (SBU) In private meetings with Moroccan Foreign Trade Minister
Maazouz and Minister of Commerce and Industry Ahmed Rena Chami,
Ambassador Donnelly highlighted the FTA's influence in attracting
foreign investment. Acknowledging that objective measurement was
impossible to quantify, Donnelly suggested that the U.S.-Morocco FTA
certainly contributed to the record level of foreign investment
Morocco has experienced in the past five years by demonstrating
Morocco's commitment to business reform, IPR protection, and trade
liberalization. Chami said the GOM was proud to have an FTA with
the U.S. and that it regularly used the FTA as a sales tool with
prospective investors. He added that Morocco needed two additional
things to make the FTA work better. First, Moroccan businesses
needed to "crack the code" of American consumers' desires and do a
better job of selling themselves to the American market. Second,
Morocco needs to convince other major economic powers, such as
China, Spain and Italy, to take advantage of the FTA by investing in
Morocco.

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

4. (SBU) Following this overview, the two sides moved on to clarify
and articulate national positions on implementation issues that have
emerged over the last two years. Chief among the U.S. issues was
Morocco's strict interpretation of permissible transshipment under
the FTA's rules of origin. Moroccan customs officials insist that
shipments can only transit a third country if they depart the U.S.
following an order (as reflected in an invoice or bill of lading)
from a Moroccan customer. Stressing that the whole purpose of the
FTA was to liberalize, not restrict trade, Donnelly emphasized that
this restrictive interpretation effectively prevents U.S. companies
from pre-staging U.S. goods in Europe prior to receiving an order
from a Moroccan customer, and thereby fails to reflect the realities
of modern international commerce. Donnelly asked the Moroccan
delegation to ponder the ramifications of a similar U.S. application
and its effect on Moroccan goods that are first exported to Europe
before distribution to U.S. retailers. While Customs officials
defended Morocco's position, Minister Maazouz agreed that bilateral
consultations through the market access subcommittee should be
intensified to attempt to find a mutually agreeable solution.

5. (SBU) The second major issue raised by the U.S. was Morocco's
administration of wheat quotas negotiated into the FTA. Although
the FTA created provisions for U.S. wheat producers to benefit from
new tariff-rate quotas (TRQs) on durum and common wheat, they went

RABAT 00000252 002 OF 003


unfulfilled in 2006. In 2007, as a result of the country's
extremely poor harvest (down 81 percent from 2006), the government
eliminated tariffs on all imported wheat through May 31, 2008,
effectively rendering the quotas meaningless. Officials at the
Moroccan Ministry of Agriculture suggested that failure to fill the
quota in 2006 resulted from incompatibility between the calendar
year TRQ and the local marketing year. They asked that the U.S.
define a "quota year" that corresponds to the Moroccan marketing
year (June-May). Donnelly repeated the U.S. position on the wheat
quota and drew the committee's attention to a new U.S. concept paper
that was presented to Moroccan officials during a DVC the week prior
to the Joint Committee. Minister Maazouz pledged to study the U.S.
concept and to send a formal response in advance of the April Ag and
SPS subcommittee meetings in Washington.

--------------------------------------------- -----
Moroccan Issues - Tomatoes and Customs Cooperation
--------------------------------------------- -----

6. (SBU) Foremost among Moroccan issues was frustration with delays
in securing phytosanitary certificates that would permit shipment of
agricultural products (namely tomatoes) from the Agadir region. In
addition, Morocco reiterated its longstanding request for tariff
acceleration on canned artichokes, and added "processed olives" to
the list, justifying the requests based on the large trade imbalance
for agricultural products. Donnelly acknowledged the importance and
sensitivity of the agriculture issue for Morocco and pledged to do
all he could to facilitate USDA processing of the requests, but
noted that U.S.'s ability to accelerate duty reductions for
sensitive products, such as olives, was limited.

7. (SBU) While acknowledging Morocco's appreciation of the
technical training provided to its counterparts by U.S. Customs, the
Moroccan delegation expressed concern about the lack of customs
cooperation on operational issues. It noted six instances where
Moroccan textile imports had been delayed or denied preferential
treatment upon entry to the U.S., yet for which Moroccan Customs had
received neither an explanation nor a request for information,
something provided for under the agreement. Donnelly agreed that
routine and operational customs cooperation was vital, and said he
would take the issue with him to D.C., in hopes of establishing a
U.S. customs point of contact.

--------------------------------------------- -------
Moroccan Business Leaders Reinforce Government Views
--------------------------------------------- -------

8. (U) The day after the plenary session, the U.S. delegation met
with leaders of Morocco's business community in Casablanca to hear
firsthand their thoughts on the agreement's first two years. The
meeting, organized by the country's leading business lobby, the
Confederation Generale des Entreprises du Maroc (CGEM), grouped
representatives from a range of business federations, including
textile, artisan, agro-industry, and financial sectors. Those
present concurred with the government's assessment that things were
moving in the "right direction," and that even if Morocco's exports
have not grown as quickly as they would wish, they were "optimistic"
for the future. Specific issues also echoed those raised in the
formal committee meeting: textile companies expressed concern about
the customs problems they have encountered, and appealed for the
U.S. to reconsider its refusal to accelerate reduction of the duties
that would enable Moroccan companies to source material from the
U.S. Agro-industry groups pressed for speedy completion of Agadir's
phytosanitary certification, as well as for better dissemination of
information on U.S. market standards.

9. (U) Several additional issues were raised, including the need
for technical assistance to bring Moroccan artisan production up to
U.S. standards and a desire for U.S. investment in the energy field,
where Morocco faces a looming capacity shortage. Business
representatives echoed government concerns about the 100 percent
scanning requirement which will take effect for U.S. imports in
2012, while also expressing hope that a future direct shipping line
from the new Tangier Med port to the U.S. East Coast will further
boost bilateral trade.

10. (SBU) Comment: The Joint Committee meeting was two years in

RABAT 00000252 003 OF 003


coming, but achieved its purpose of permitting the two parties to
sit down and take stock of where we are. Key outcomes were
agreement to reinvigorate the tempo of meetings of the subcommittees
established under the agreement, to work towards settlement of the
nagging implementation issues that have divided the two sides.
Nonetheless, there was broad agreement that these concerns pale in
comparison with the overall success registered in the last two
years. The challenge now is to deepen and extend that opening. End
Comment.

RILEY

SENSITIVE BUT UNCLASSIFIED

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