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Cablegate: Mozambique Cautiously Approaches the Prospect of A

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 MAPUTO 000998

SIPDIS
SENSITIVE
STATE PASS TO THE MILLENNIUM CHALLENGE ACCOUNT
USTR FOR AMB SHINER AND PCOLEMAN
AF/S FOR KDAVISON
USDOC/ITA FOR AHILLIGAS
E.O. 12958: N/A
TAGS: ETRD EAID PREL MZ AGOA MCC TIFA
SUBJECT: MOZAMBIQUE CAUTIOUSLY APPROACHES THE PROSPECT OF A
FTA

1. (SBU) Summary. Ambassador met with Minister of Industry
and Commerce Carlos Morgado on July 22 to follow-up on
discussions held between Morgado and USTR officials in
Washington in early July on the prospect for a US-Mozambique
FTA, as well as to discuss the status of Mozambique's
participation in the MCA and how Mozambique can better take
advantage of AGOA. Ambassador was accompanied by USAID
Enabling Environment Team Leader Tim Born and Econ/pol
officer Elizabeth Jaffee (notetaker); Minister Morgado was
accompanied by four Ministry officials, including the
Director for International Affairs. While obviously
welcoming the offer, Morgado was cautious and non-committal
regarding the FTA. The key concern from the stand-point of
the Mozambican government (GRM) is the lack of technical
capacity. This problem is so acute that technical assistance
would be necessary to assist the GRM formulate a position on
whether to even move forward with a FTA. The Ambassador
outlined both the process for negotiations and potential
benefits from a FTA. A useful first step would be the
National Assembly's ratification of the Bilateral Investment
Treaty (BIT), which has been awaiting ratification by
Mozambique's National Assembly for over four years. Morgado
is drafting a letter for USTR which will highlight the GRM's
concern over its limited capacity to negotiate and request
technical assistance. End Summary

----
FTA
----
2. (SBU) The Ambassador opened the meeting with Morgado by
describing the USG's broader interest in negotiating a FTA
with a sub-Saharan African country and our particular focus
on Mozambique as a key reformer in the region. A
US-Mozambican FTA was described as an opportunity to deepen
our trade relationship, broaden reforms within Mozambique,
and put a "seal of approval" on Mozambique as a site for
investment, including third-country investment. It was noted
that this is a collaborative and mutually beneficial process
and that capacity building would be "built-in" to any
negotiations. However, it was stressed that Mozambique had to
make its own decision based on the costs and benefits of a
FTA. The Ambassador noted the various stages of FTA
negotiations, highlighting the role of both a BIT and TIFA.
The fact that Mozambique's National Assembly has yet to
ratify the BIT, despite the US Senate's ratification in 2000,
was raised as a concern. Mozambique was encouraged to ratify
the BIT as soon as possible.

3. (SBU) Morgado stated that he made clear during his
meeting with USTR that Mozambique did not yet have a formal
position on pursuing FTA negotiations. Mozambique's limited
trade capacity was cited as the principal constraint. It is
only within the past few years that Ministry of Industry and
Commerce (MIC) personnel have begun to obtain the skills
necessary for active participation in regional or
multilateral trade negotiations. US-Mozambique FTA
negotiations would further strain limited capacity,
particularly as Mozambique is already engaged in on-going
negotiations with Europe and SADC. Morgado described the
US-SACU FTA negotiations as potentially negatively impacting
prospects for regional integration (specifically, SADC), by
selected countries negotiating within an existing trade
block. Turning to next steps, Morgado noted that he will be
sending a letter to Ambassador Shiner that will highlight
Mozambique's limited capacity and request technical
assistance from the USG. The need for "PR" within the GRM on
pursuing potential FTA negotiations was also discussed.
Regarding the BIT, Morgado noted that as a treaty the BIT
must be ratified by the National Assembly, which is
notoriously slow and has other legislative priorities. He
further noted that the GRM had been advised by Washington
that a BIT must be approved by the National Assembly, not by
executive decree, which he said could be done by the end of
the month. Initiation of FTA negotiations could provide the
political impetus for the National Assembly to ratify the
BIT. Post would appreciate clarification on whether the USG
requires National Assembly ratification of a BIT.

---------
AGOA/MCC
---------
4. (SBU) When questioned as to why Mozambique had not taken
greater advantage of AGOA, Morgado cited two key factors: 1)
inadequate resources/technical capacity for promotion
activities and 2) supply side constraints. He described the
GRM's strategy under AGOA as focused on several key sectors.
In particular, Morgado highlighted the strong potential for
increased exports of value-added aluminum products such as
coils and axles. (Note: Morgado has previously expressed his
interest in taking advantage of Mozal, a huge aluminum
smelter located outside of Maputo that accounts for a
significant portion of Mozambique's export earnings. End
Note) Another potential area for increased exports is
processed foods (specifically, sugar-based products such as
jams). Morgado down-played the potential for shrimp, citing
difficulties for local exporters to meet USG health and SPS
requirements, as well as already established links to Europe
and capped supply. The link between potential MCC projects
and addressing supply side constraints was noted, with the
Ambassador stressing the importance of the GRM communicating
directly and regularly with MCC officials. Morgado stated
that Mozambique had agreed on a joint principal for MCC and
would submit a proposal by the end of August.

5. (SBU) Comment: There is no question that a FTA would be a
significant boost to Mozambique. However, post shares
Morgado's concerns about Mozambique's limited capacity to
negotiate. Through USAID, the USG is already providing
significant technical assistance to MIC, which has been
critical in developing national capacity. Much more extensive
assistance will be required for any actual FTA negotiations.
Moreover, while Mozambique is rightly considered a committed
"reformer" and a model for other African countries,
businesses face considerable constraints. An ineffective
judiciary, inflexible labor laws, and extensive red-tape
continue to inhibit trade and investment. In the near-term, a
TIFA could provide an excellent mechanism to begin
discussions on addressing these issues. In the medium to
long-term, a FTA could provide both the political and
economic impetus for the GRM to removing these constraints.
We look forward to USTR's response to Morgado's letter. End
Comment
LA LIME

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