VZCZCXRO7570
RR RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHRB #0304/01 0451325
ZNR UUUUU ZZH
R 141325Z FEB 07
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 5850
INFO RUEHCL/AMCONSUL CASABLANCA 2675
RUEAORC/US CUSTOMS AND BORDER PROTECTION WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHLO/AMEMBASSY LONDON 3228
RUEHFR/AMEMBASSY PARIS 4537
RUEHNK/AMEMBASSY NOUAKCHOTT 3423

UNCLAS SECTION 01 OF 03 RABAT 000304 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EB/TPP/ABT 
DEPT FOR NEA/MAG 
STATE PLEASE PASS TO USTR HEYLIGER AND BELL 
COMMERCE FOR ITA/OTEXA M. D'ANDREA 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KTEX PREL MO
SUBJECT: FTA SPURS MOROCCAN TEXTILE EXPORTS TO THE U.S. 
 
¶1. (U) This message is sensitive but unclassified.  Please protect 
accordingly. 
 
¶2. (U) Summary:  A U.S. Customs and Border Protection (CBP) 
inspection of Moroccan textile factories highlighted the positive 
impact the U.S-Morocco Free Trade Agreement (FTA) has made during 
its first year.  The Moroccan Ministry of Industry and Commerce 
reports textile exports to the U.S. rose 52 percent in 2006, largely 
due to the FTA.  Nonetheless, the visit revealed an industry that is 
just beginning to exploit the FTA's liberal access to American 
markets, with the majority of Moroccan apparel still reaching the 
U.S. through European intermediaries and not benefiting from the 
FTA.  Although a Tariff Preference Level (TPL) was written into the 
FTA for non-originating apparel made from foreign material, Moroccan 
officials report only 12 percent of the TPL was filled in 2006.  The 
visit also underlined differing U.S. and Moroccan interpretations of 
permissible transshipment; and reinforced the need for improved 
cooperation and communication between U.S. and Moroccan customs 
officials.  End Summary. 
 
--------------------------------------- 
First Visit By U.S. Textile Specialists 
--------------------------------------- 
 
¶3. (U) The two-week visit by a three-member team of CBP textile 
import specialists ended on February 3.  It was the first ever visit 
by a CBP Textile Production Verification Team (TPVT) to Morocco and 
occurred approximately one year following implementation of the 
U.S.-Morocco FTA on January 1, 2006.  TPVTs conduct production 
verifications as part of CBP's program to verify and enforce U.S. 
trade agreements.  The team visited 15 factories in and around 
Rabat, Sale, Fes, and Casablanca that had shipped textiles to the 
U.S. within the past year.  Each visit included a comparison of U.S. 
import documentation with factory cutting and production records. 
During their out-brief to Moroccan officials, the team reported no 
significant problem areas and described all the factories visited as 
remarkably clean, modern, well-managed, and compliant with both WTO 
and FTA provisions. 
 
--------------------------- 
Originating Article or TPL? 
--------------------------- 
 
¶4. (U) A key benefit of the team's visit was the opportunity for 
Moroccan customs and industry officials to receive FTA "Rules of 
Origin" and "Preference Rules" training.  The training, organized by 
the USAID-funded New Business Opportunities program, attracted 
approximately 70 participants and was presented by Mr. Mark Palasek, 
a CBP Textile Import Specialist based at JFK. 
 
¶5. (U) A major focus of the half-day training was determining and 
defining what constitutes an originating article.  While the FTA 
rules of origin were designed to ensure only U.S. and Moroccan goods 
would benefit from the accord's preferential market access, the 
training revealed a matrix of rules that applied to various material 
and fabric. 
 
¶6. (U) Palasek explained that the majority of apparel under the FTA 
has a yarn-forward rule, meaning that in order for the article to be 
categorized as an originating article, it must be made of U.S. or 
Moroccan yarn and all production operations forward must be either 
U.S. or Moroccan.  However, Palasek stressed that Moroccan products 
that do not meet the rules of origin criteria may still be eligible 
under the Tariff Preference Level (TPL) quota established in the FTA 
for non-originating apparel.  The TPL for non-originating apparel 
was set at 30 million square meters for the first four years of the 
FTA. 
 
¶7. (SBU) Houda Marrakchi, responsible for FTA implementation at the 
Foreign Ministry, stressed that only Moroccan Customs had the 
authority to determine whether Moroccan apparel qualified under the 
TPL.  She explained that Moroccan Customs issues "Certificates of 
Eligibility" that should accompany each shipment that claims FTA 
eligibility under the TPL.  She stressed that if a shipment did not 
have a Certificate of Eligibility issued by Moroccan Customs, then 
it did not qualify under the TPL.  According to the Ministry of 
Industry and Commerce, 12 percent of the 2006 TPL quota was filled. 
 
 
 
RABAT 00000304  002 OF 003 
 
 
--------------------------------------------- ------- 
Many Moroccans Unaware Their Products Reach the U.S. 
--------------------------------------------- ------- 
 
¶7. (U)  The inspection revealed that several of the general managers 
of the factories visited were unaware that their products were bound 
for the U.S.  Polex Sport Factory located in the Rabat suburb of 
Tamara is a prime example. 
 
¶8. (U) Polex is a subsidiary of the French-owned Devanlay Group, 
which markets the Lacoste brand of apparel. Polex employs 
approximately 350 daily workers and produces approximately 8000 
articles a day.  The normal work week is 44 hours, but overtime on 
Saturdays is not uncommon.  At any given time the factory operates 
approximately 4 cutters and 150 sewing stations.  Polex imports 100 
percent of its material and exports 100 percent of its product to 
its parent company in France.  The general manager was unaware that 
whole lots of his product were shipped to the U.S. by Devanlay. 
 
¶9. (U) Devanlay collects the shipments from Polex, along with 
similar shipments from its other international subsidiaries, and 
then distributes Lacoste brand apparel to its retailers in the U.S. 
The general manager of Polex did not apply for a Certificate of 
Eligibility under the TPL for non-originating articles, and Moroccan 
customs officials classified the commerce as between Morocco and 
France.  Thus, even though the Moroccan produced apparel never 
entered into commerce and Devanlay did not add any value to the 
garments, the Moroccan produced shirts were assessed a 19 percent 
full duty when they arrived from Devanlay to the U.S.  Both the 
Polex General Manager and Moroccan customs officials were surprised 
to learn from the CBP team that they considered this type of 
commerce as eligible under the non-originating TPL.  When asked why 
he hadn't applied for a Certificate of Eligibility, the General 
Manager replied that he had been unaware of the regulations, but 
that he would contact his corporate headquarters. 
 
------------------------- 
What is a Trans-Shipment? 
------------------------- 
 
¶10. (SBU) The CBP team's visit also highlighted the ongoing 
difference between Moroccan and U.S. views of what constitutes 
permissible transshipment under the FTA.  The more liberal U.S. 
position is that as long as a product does not enter into commerce 
or advance in value, it remains a direct shipment and qualifies 
under the TPL.  Moroccan customs officials have a much stricter 
interpretation.  According to El Aid Mahsoussi, Director of Training 
and International Cooperation for the Moroccan Customs Service, the 
Polex shipment cited above involves two separate shipments, one from 
Morocco to France and the other from France to the U.S.  Mahsoussi's 
position is that the Moroccan commerce is to France, and thus, 
outside the FTA. 
 
¶11. (SBU) (Note: Moroccan Customs applies this same logic to U.S. 
products that are first shipped to European distributors.  Even 
though the U.S. products do not enter into commerce, and are stored 
in customs warehouses without any value added, Moroccan Customs 
interprets the goods as originating from Europe when they arrive in 
Morocco, and thus outside the scope of the FTA.  This remains a key 
point of disagreement that has been the subject of a DVC between 
U.S. and Moroccan officials.  End Note.) 
 
---------------------------- 
Can't Argue With the Numbers 
---------------------------- 
¶12. (U) Figures released by the Ministry of Industry and Commerce 
show textile exports to the U.S. increased 52 percent in 2006, with 
hosiery exports increasing 102 percent.  Ministry officials are not 
shy in acknowledging the FTA's positive impact, noting that 40 
companies profited from the accord in its first year with 6.5 
million square meters (12 percent) of the non-originating TPL quota 
filled.  The Ministry also acknowledged the impact of the 
USAID-managed New Business Opportunities (NBO) Program, and its 
success in assisting Moroccan textile companies in taking advantage 
of export opportunities to the U.S.  Through the assistance of NBO, 
11 Moroccan companies participated in the 2006 Magic Show in Law 
Vegas, where they garnered over USD 10 million in orders.  NBO is 
again leading a Moroccan delegation to the 2007 Magic trade show 
(February 13-16) with hopes of surpassing last year's orders. 
 
RABAT 00000304  003 OF 003 
 
 
¶13. (SBU) Comment:  The CBP inspection visit was a significant step 
forward in establishing a working dialogue between U.S. and Moroccan 
customs.  Although the Moroccans were initially perturbed by the 
short-notice of the visit and questioned its justification under the 
terms of the FTA, they fully cooperated with the visit and were 
receptive to the training opportunity. 
 
¶14. (SBU) Comment cont'd:  While some retailers consciously choose 
not to apply for a TPL in order to market their apparel as European, 
the visit revealed that much of the Moroccan textile sector remains 
largely unaware of the opportunities offered by the FTA.  This 
reinforces the continued importance of the USAID managed NBO program 
in both introducing U.S. buyers to Moroccan textile producers, and 
in assisting Moroccan firms in breaking into the American market. 
 
¶15. (SBU) Comment cont'd:  The visit also again showcased the 
unresolved issue surrounding the definition of transshipment, which 
post recommends be a major agenda item at the FTA's first annual 
review.  Septel will assess in broader terms where we are in terms 
of implementation of the FTA.  End comment. 
 
Bush