VZCZCXYZ0000
RR RUEHWEB

DE RUEHRB #2169/01 3281632
ZNR UUUUU ZZH
R 241632Z NOV 06
FM AMEMBASSY RABAT
TO SECSTATE WASHDC 5257

UNCLAS RABAT 002169 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT PLEASE PASS USTR FOR DOUG BELL 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PGOV MO
SUBJECT: MOROCCAN GOVERNMENT DEFENDS ITS TOBACCO POLICY 
 
REF: STATE 163312 
 
 ¶1. (SBU)  Summary: Econ Counselor met on November 15 with 
Abdelaziz Talbi, Morocco's Director of Public Enterprises and 
Privatization, to review the GOM's decision to extend 
Morocco's monopoly on the wholesale distribution of tobacco 
from December 31, 2007 to December 31, 2010.  Reiterating the 
USG concerns contained in the diplomatic note of October 2 
(reftel), he requested clarification of the societal and 
economic concerns that the GOM argues necessitate the 
extension, particularly in light of the privatization of the 
national tobacco distribution company, the Regie des Tabacs. 
Talbi said that while the Regie is now a private company, it 
retains important responsibilities to help the tobacco sector 
adapt to increasing global competition and changing consumer 
tastes.  The extension, he said, was necessary to allow it to 
carry out those tasks.  He outlined earlier liberalizing 
measures for the sector, including ending the monopoly on the 
import, export, and manufacturing of tobacco, and noted that 
even as it extended the monopoly, the GOM had also eliminated 
a requirement that cigarettes manufactured in Morocco have 20 
percent local content.  End Summary. 
 
¶2. (SBU) Talbi's justification of the GOM's decision to 
extend the tobacco monopoly drew largely on material he had 
earlier furnished to USTR through Morocco's Ministry of 
Foreign Affairs, in response to a request for information on 
the decision.  He explained that the tobacco sector in 
Morocco, which encompasses over a thousand farms on some 800 
hectares, employs over 7,000 people in some of the poorest 
parts of the country.  The sector, he said, is in desperate 
straits, largely as a result of the shift in consumer tastes 
here from "brown" tobacco, which is grown locally, to "blond" 
tobacco.   Producers are on the "verge of complete failure," 
he said, and are giving up tobacco and turning to illicit 
products like cannnabis. 
 
3, (SBU)  In order to maintain tobacco's viability and "save 
this activity," the GOM concluded a convention with the Regie 
des Tabacs, by which the Regie will provide technical 
assistance to maintain and increase production of tobacco and 
help farmers shift from "brown" tobacco to a more popular 
oriental tobacco (tabac d'orient), which is now largely grown 
in Greece.  Morocco's climate is favorable for that variety, 
he said, as is the fact that it is labor rather than capital 
intensive.  The imminent end of EU subsidies to Greek 
producers, Talbi said, offers Morocco an important market 
opening,   He predicted that ultimately up to 6,800 hectares 
(an eight-fold increase) might be dedicated to its 
cultivation, with the potential for up to 100,000  jobs. 
 
¶4. (SBU) Talbi dismissed media suggestions that the monopoly 
extension was a quid pro quo for the Regie de Tabac's recent 
agreement to buy the remaining 20 percent of the company that 
had remained in state hands after its 2003 privatization. 
The initial 2003 deal selling the Regie to the Spanish/French 
company Altadis offered the purchaser an option on the 
remaining shares, he said, which could be exercised at the 
original purchase price.  He also dismissed complaints from 
brokers in Casablanca who argued that the shares should have 
been placed on the Casablanca Stock Exchange.  He estimated 
that the amount the government received for the shares from 
Altadis was likely double what they would have fetched on the 
exchange, given the control premium that Altadis was willing 
to pay. 
 
¶5. (SBU) Talbi also argued that despite the prolongation of 
the monopoly on wholesale distribution of tobacco, other 
liberalizing moves have been taken in recent years, with the 
elimination of the state monopoly on the export and import of 
raw tobacco (in 2003 and 2005 respectively) and the 
elimination of the monopoly on the manufacturing and export 
of manufactured tobacco (also from 2005).   He argued that 
the government's decision in 2006 to eliminate the 
requirement that cigarettes produced in Morocco have 20 
percent local tobacco contact was further evidence of its 
liberalizing intentions.  Nonetheless, he said, the 
precarious state of the tobacco sector and the need to enlist 
Altadis' assistance had required extentionof the tobacco 
monopoly. 
 
¶6. (SBU) Talbi askedspecifically if the USG has received 
complaints about the measure from the U.S. private sector. 
Hesaid that he had received Philip Morris in early Nvember 
and that they were "very content" with ovrall GOM policy in 
the sector.  Currently, he noed, Philip Morris brands 
represent 8 percent of cigarette sales in Morocco.  He 
suggested that thecompany is even thinking of manufacturing 
cigaretes in Morocco, if it can receive preferential tarff 
rates on tobacco imported from Europe. 
¶7. (SBU) Comment: Talbi and his counterparts at the MFA are 
well aware of USG concerns about the monopoly extension, and 
we made clear that further discussion is likely the context 
of our review of the agreement's first year.  While 
government projections of potential cultivation of tabac 
d'orient may appear optimistic, as recently as the early 
1990's Morocco did devote almost 6,000 hectares to tobacco 
cultivation.  End Comment. 
****************************************** 
Visit Embassy Rabat's Classified Website; 
http://www.state.sgov.gov/p/nea/rabat 
****************************************** 
 
Riley