Cablegate: Ambassador Discusses Qiz, Rail Equipment Sales

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RR RUEHWEB

DE RUEHEG #6666 3061209
ZNR UUUUU ZZH
R 021209Z NOV 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 2361
INFO RUEHAM/AMEMBASSY AMMAN 1440
RUEHBJ/AMEMBASSY BEIJING 0126
RUEHTV/AMEMBASSY TEL AVIV 1280
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS CAIRO 006666

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD EINV ECON EFIN EAID IS CH EG
SUBJECT: AMBASSADOR DISCUSSES QIZ, RAIL EQUIPMENT SALES
WITH MINISTER OF TRADE

Sensitive but unclassified. Not for internet distribution.

1. (SBU) SUMMARY: In an October 30 call on Minister of
Trade and Investment Rachid, Ambassador pressed for favorable
GOE consideration of US-produced rail equipment and raised
the issue of Egypt's continued ban on US poultry part
exports. Rashid asked for an expansion of QIZs to Upper
Egypt in support of the government's efforts to promote
development in that region and said that Egypt was continuing
to discuss with Israel the possibility of a reduction of
Israeli inputs into QIZ exports from 11.7 to 8 percent.
Rachid was noncommittal in response to the Ambassador's
request for his help in pushing for a timely GOE response to
the USAID sectoral reform benchmark proposal, originally
promised for end-October. END SUMMARY.

2. (SBU) In advance of Egyptian President Mubarak's visit to
China this week, the Ambassador called on Minister of Trade
and Investment Rachid Rachid to urge the GOE to purchase
US-manufactured locomotives as part of their planned upgrade
of Egypt's rail transportation infrastructure. (Note: After
the August 2006 train crash in which 58 Egyptians were
killed, the GOE announced plans to spend $873 million to
upgrade the rail sector, and asked for USG help in addressing
continuing rail safety concerns. End note.) The Ambassador
asked the GOE to look beyond the issue of price and also
consider quality and maintenance. He pointed out to Rachid
that seventy percent of locomotives currently in use
worldwide are US-produced. Rachid responded that Egypt will
conduct the locomotive purchase process in an open and
transparent way. He noted the Europeans are also in the
running, but recognized the merit in the Ambassador's
argument in favor of US-manufactured engines.

3. (SBU) QIZs: Rachid outlined ambitious GOE plans for
development in Upper Egypt, and said this is now a major
focus of Prime Minister Nazif's economic team. The team, he
said, feels an obligation to move forward on economic
development in Egypt,s poorest region. The program involves
new factories, as well as transport, health and education
infrastructure to lure senior and mid-level managers to the
region. Rachid suggested the USG could support this effort
by extending QIZ coverage to Upper Egypt. He stressed the
positive brand appeal of QIZ, which would draw positive
attention to GOE,s efforts in the region.

4. (SBU) Under current QIZ rules, Israeli content in
Egyptian-produced goods must be 11.7 percent, compared to 8
percent for QIZ's in Jordan. When asked if the GOE is
talking to the Israelis about the possibility of reducing
the required Israeli content, Rachid said yes. In fact, he
said, Israeli PM Olmert had promised this change to Mubarak
at their June 2006 summit in Sharm El Sheik. According to
Rachid, however, since then the Israeli trade minister has
been trying to renegotiate the deal. Rachid has rebuffed
him, he said, noting that he couldn't back off his own
president's agreement. The Ambassador asked if Rachid wanted
USG support on the issue; Rachid replied that it would be
better for Egypt and Israel to work the matter out among
themselves. He complained, however, that the Israeli
position is "frustrating."

5. (SBU) POULTRY EXPORTS: Ambassador also raised the
Egyptian ban on US poultry part exports, noting that its
connection with low-pathogenic Avian Flu outbreaks in the US
was unscientific. He also emphasized that the ban deprives
Egyptians of cheap protein at a time of rising food costs;
several factors have contributed to food prices increases of
up to 20-30 percent in recent weeks. The poultry parts )
legs and thighs -- have the benefit of being cheaper than
other imported chicken products. Rachid agreed and said he
is working on a solution. He hopes to have something soon.

6. (SBU) USAID BENCHMARKS: The Ambassador also reviewed
the status of USAID sectoral cash transfer negotiations,
underlining the need for a timely GOE response. Rachid said
he is aware of the issue but is not directly involved in the
process. Note: The GOE promised a response to the
US-proposed aid reform benchmarks by the end of October; to
date, we have not received anything from the GOE.
RICCIARDONE

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