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Cablegate: Trade Official On Goe Econonic Reform, Trade Strategy,


DE RUEHEG #2409/01 3291414
R 241414Z NOV 08




E.O. 12958: N/A

Sensitive but unclassified. Please handle accordingly.

1. (SBU) SUMMARY: In a November 13 meeting with Commerce DAS for
Services Mark Brady, Ministry of Trade and Investment First Advisor
Samiha Fawzy said that Egyptian was not interested in a new
bilateral investment treaty (BIT) with the U.S., and that Egypt must
"maintain the FTA as an overall objective for political reasons."
She said Egypt's priority is to expand their markets beyond the
U.S., EU and the region. Fawzy said Egypt's new focus is on
improving trade relations with India, South Africa and Brazil.
Fawzy's comments echo recent public remarks by former Egyptian
Ambassador to the US Nabil Fahmy, in which he said the incoming
Administration and Congress were unlikely to make FTA negotiations a
priority, and that Egypt's trade and investment relationship with
the U.S. was successful even without an FTA. Based on Fawzy's other
remarks, and the attitude of other GOE contacts, however, the GOE
wants to work with the USG to address outstanding trade and access
issues such as IPR, agricultural, and standards on a more practical
level. If we do wish to re-engage on trade within a formal
structure, we may need to re-package TIFA or the US-Egypt Business
Council into a new format so as to gain GOE support.

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2. (SBU) On November 13, visiting Commerce DAS for Services Mark
Brady and Office Director for Services R.J. Donovan met with
Ministry of Trade and Industry (MTI) First Advisor Samiha Fawzy to
discuss bilateral cooperation on trade, progress on economic reform
and Egypt's overall trade strategy. MTI's Mona El Garf, along with
Commercial Attache and econ counselor (notetaker) also participated.
DAS Brady raised two ongoing issues, a problem Coca Cola has
encountered with a former bottler continuing to produce under the
Schweppes label, and concerns that Nike has expressed about Egyptian
labeling requirements (septel).

3. (SBU) Fawzy opened by saying the Government of Egypt (GOE) has
made a lot of progress on economic reform, is on the right track,
but needs to do more. Social and cultural changes necessary for
real success, she said, including eradicating illiteracy and
poverty, remain a challenge. She described the need to convince
people that a free market is good, to encourage Egyptians across the
economic spectrum to participate in the market, and to make sure
positive results are felt by everyone. In Fawzy's view, much of the
country is still caught in the past fifty years of socialist
policies. The government, she said, also has to look more closely
at the question of managing and sequencing of the reforms. She
cited the need for the media to play bigger role in educating the
public. "We were not doing enough on this," she observed.

4. (SBU) According to Fawzy, the GOE is considering a package of
quick reforms to regain momentum. She acknowledged that the reform
process had been drifting in recent months, but that it is now
essential to move forward. The package includes a commitment not to
raise energy prices, either for fuel or electricity, through
end-2009. Also, the GOE wants to focus on raising overall
productivity and finding ways to promote exports, provide incentives
for export-linked jobs, and support Egyptian participation in
international exhibitions.

5. (SBU) In terms of the impact of the financial crisis, she said
that the Egyptian banking system is sound, and that recent rating
agency reports support the GOE contention that there are no serious
problems in the banking sector. This, she said, gives Egypt hope
that investment from the Gulf will continue. MTI Minister Rachid
has been in the Gulf for the past two weeks to promote continued
investment by the sovereign wealth funds in Egypt. When asked about
the impact of the crisis on growth, she noted the Central Bank is
"running different scenarios" had not yet shared them with the rest
of the government. She said the GOE is still hoping that impact
will be limited to a reduction in growth from 7 to 5 percent in the
2008-09 period.

Egypt's Trade Strategy
6. (SBU) The GOE also is working to diversify beyond its
traditional partners, the U.S., Europe and the region. Egypt's new
strategy focuses on India, South Africa and Brazil. President
Mubarak and Minister of Trade Rachid were in India the week of
November 16 and signed an economic cooperation framework agreement,
as well as cooperation agreements on SMEs, and technical transfer.
Egypt is talking to MERCOSUR about an FTA, with Brazil in the lead
on the MERCOSUR side. In December, Rachid will travel to South
Africa, and is also looking to increase trade with Sudan and
Nigeria. Egypt, Fawzy said, has successfully expanded trade with
Russia and central Asian states such as Kazakhstan. FTA
negotiations with the EU continue and, Fawzy said, are focused on
services. The EU has identified the key sectors of finance,

telecommunications, computer services, postal and courier services,
maritime and transport and e-commerce. The GOE does not have a
final negotiating list, but is interested in distribution,
transportation and infrastructure and storage.

US-Egyptian Trade Relations
7. (SBU) In response to a question about cooperation with the
United States, Fawzy cited the success of the QIZ agreement. This
agreement, she said, was a "good step," both for trade and the
region. She said the exports under the QIZ allowed Egyptian workers
and their families to realize real economic benefits from the peace
process. Fawzy reiterated Egypt's request for QIZ expansion to
Upper Egypt, noting that this was the poorest and most vulnerable
region of the country. She said investors are not interested in
going there, despite government investment incentives, anhat the
additional impetus provided by a QIZ-like arrangement was needed.

8. (SBU) Fawzy also suggested that the U.S. and Egypt work together
to promote investment but was adamant that this did not mean that
Egypt was interested in negotiating a BIT. She said that a BIT was
not in Egypt's interest, that the GOE would not negotiate a new BIT
outside an FTA, that there was no "logic" to this and that BIT
negotiations had been "refused" by the government. Her comment was
that the U.S. and Egypt had been talking seriously about an FTA and
that politically the GOE "cannot lower its ambitions." She said
that Egypt must "maintain the FTA as an overall objective for
political reasons" and cannot go to the public and say that Egypt
would do a BIT instead. She expressed appreciation for the QIZ
program, and access to U.S. markets for Egyptian goods through GSP.
When asked if there was any particular sector among the fourteen
covered by the TIFA agreement that Egypt would be interested in
discussing, she was adamant that Egypt was not interested.

9. (SBU) On the other hand, Fawzy said, Egypt wants to work with
the U.S. on more concrete issues, such as franchising. She would
like to see a new franchise law for Egypt to facilitate the entry of
new companies. The ministry has already assembled a team that
includes legal, private sector and government representatives, and
plans a public awareness effort. In her view, franchising would
improve service delivery, and the overall efficiency of the internal
Egyptian market. She sees improved services, including
distribution, logistics, transportation, the supply chain and
storage, as an important input into the productive sector. Egypt's
current distribution and transportation network is limited and
expensive. Due to a lack of market structure and competition,
prices are higher and goods are scarcer outside Alexandria and Cairo
than they should be. The limits of the network also affect the
ability of potential producers in Upper Egypt to get goods to
market. A more efficient internal market, the GOE believes, will
help the average Egyptian benefit from reform.

10. (SBU) COMMENT: Fawzy's comments about formal trade
negotiations echo remarks made publicly a few days ago by recently
returned Egyptian Ambassador to the U.S. Fahmy. In a speech to the
AmCham, Fahmy said that the incoming Democratic Administration and
Congress were unlikely to make any FTA negotiations a priority, and
that Egypt's trade and investment relationship with the U.S. was
highly successful even without an FTA. Other GOE officials have
told us that Egypt is not interested in a BIT at this time. Fawzy's
comments to us last week were the most definitive and detailed
explanation we have had on precisely why the GOE is not interested
in formal negotiations, short of an FTA. If we do wish to re-engage
on trade within a formal structure, we may need to re-package TIFA
or the US-Egypt Business Council activities into a new format so as
to gain GOE support.

11. (SBU) COMMENT CONT: In the meantime, the GOE is willing to
work with the USG to address outstanding trade and access issues on
a more practical basis. For example, we continue to engage on IPR
issues within the context of the Watch List process. MTI is talking
to USAID-funded technical experts about market access issues such as
the labeling requirement that Nike has complained about (septel).
Fawzy acknowledged Egypt is under pressure from the EU to bring its
trade and regulatory regime closer to the EU acquis, but said Egypt
did not want to limit itself and continue to focus instead on
international, rather than European, standards. USAID and FCS are
involved in this effort to maintain access for U.S. goods, including
by supporting cooperation between the American National Standards
Institute (ANSI) and the new Egyptian standards agency. In the
agriculture sector, we are gaining additional access for more
food-related products as we chip away at technical barriers,
including live dairy cattle, whole chickens, and poultry byproduct
meal (for cattle and poultry feed). USG support for Egypt's new
food safety agency, which will base its evaluations on a
risk-management approach, rather than on the precautionary

principle, has helped.

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