VZCZCXRO8458
RR RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHRB #1397/01 2481120
ZNR UUUUU ZZH
R 051120Z SEP 07
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 7326
INFO RUEHCL/AMCONSUL CASABLANCA 3428
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHLO/AMEMBASSY LONDON 3369
RUEHFR/AMEMBASSY PARIS 4735
RUEHNK/AMEMBASSY NOUAKCHOTT 3558

UNCLAS SECTION 01 OF 03 RABAT 001397 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/MAG, EB/IFD/OIA and EB/TPP/BTA 
STATE PLEASE PASS TO USTR P BURKHEAD AND MARY LATIMER 
USDOC FOR ITA/MAC/ONE ROTH 
TREASURY FOR OASIA 
USDA FOR ITP PAT SHIEKH AND BARBARA CHATTIN 
 
 
E.O. 12958: N/A 
TAGS: EINV ETRD EFIN EAGR PGOV MO
SUBJECT: MOROCCO FTA ANNUAL REVIEW 
 
REF: RABAT 00405 
 
Sensitive but unclassified.  Please protect accordingly. 
 
¶1. (U) Summary:  During his August 28-31 visit to Morocco, Assistant 
U.S. Trade Representative (USTR) Shaun Donnelly emphasized the 
mutual benefits of the U.S.-Morocco Free Trade Agreement (FTA) and 
outlined U.S. thinking regarding preparations for the first meeting 
of the Joint Committee later this year.  Although Donnelly heard a 
predominantly positive Moroccan assessment of the agreement, he also 
reviewed outstanding issues that have arisen since the FTA's 
implementation on January 1, 2006.  Foremost among these issues are 
a significant difference in bilateral trade data, disagreement on 
the definition and application of transshipment, and Moroccan 
administration of cereal quotas.  End Summary. 
 
--------------------------------------------- ----- 
First Joint Committee Meeting Since Implementation 
--------------------------------------------- ----- 
 
¶2. (U) Assistant USTR for Europe and the Middle East, Shaun 
Donnelly, Assistant USTR for Trade Capacity Building, Mary Ryckman, 
and Director for European and Middle Eastern Trade Affairs Paul 
Burkhead met with GOM officials and Moroccan business 
representatives on August 30 in preparation for the first Joint 
Committee meeting since implementation of the U.S-Morocco FTA on 
January 1, 2006.  The USTR team first met with approximately 20 
Moroccan officials representing the various ministries involved with 
implementing the FTA, which was led by MFA's FTA expert Houda 
Marrakchi. 
 
¶3. (SBU) USTR officials then met privately with Ambassador Abdallah 
Salah Eddine Tazi, Director of American Affairs in the Ministry of 
Foreign Affairs (MFA).  Tazi emphasized the importance of the FTA as 
the most visible symbol of U.S.-Moroccan cooperation and said that 
Morocco was open to the Joint Committee convening in either the U.S. 
or Morocco.  He remarked that the FTA, together with similar 
agreements with the European Union and Turkey, demonstrated 
Morocco's commitment to reform, transparency, and international 
competitiveness.  Tazi acknowledged that the Ministry had been 
focused earlier in the year on other issues, but predicted that the 
new Moroccan government would be ready to engage on the Joint 
Committee meeting following its installation in mid-October. 
(Comment:  Donnelly et al were originally scheduled to meet with 
Taib Fassi Fihri, Minister Delegate to the Minister of Foreign 
Affairs, who was called away to France in preparation for an 
upcoming visit by President Sarkozy.  Fihri was the principal 
negotiator for the FTA, is in many respects the most important 
player within the GOM on U.S. issues, and will most likely represent 
Morocco in the Joint Committee.  Tazi's insistence that discussion 
of the Joint Committee meeting await the formation of a new 
government likely means that we may not be able to hold a meeting in 
¶2007. End Comment.) 
 
¶4. (SBU) Both Tazi and Marrakchi emphasized their belief that the 
Joint Committee meeting should accentuate the positive, and leave 
areas of disagreement to be addressed by technical committees and 
ongoing informal discussions.  Ambassador Donnelly agreed, 
suggesting that difficult issues be considered by the applicable 
technical committees in the run-up to the annual review: i.e., the 
Market Access Committee could consider transshipment, GSP 
preferences, and accelerated reduction of textile tariffs, while the 
agricultural committee could address the full range of agricultural 
issues and build on recent video-conferences between U.S. and 
Moroccan officials that have focused on wheat quota issues. 
 
-------------------------------------------- 
Principal Issue - Differing Trade Statistics 
-------------------------------------------- 
 
¶5. (SBU) The most significant issue raised during the GOM meetings, 
and one that could influence how high a profile Morocco wishes to 
accord the Joint Committee meeting, was the significant difference 
in bilateral trade statistics following the FTA's implementation. 
Far from showing an increase in Moroccan exports to the U.S. (U.S. 
trade data complied by OTII/Dept of Commerce show Moroccan exports 
to the U.S. increased 18 percent to USD 521 million), Moroccan data 
 
RABAT 00001397  002 OF 003 
 
 
compiled by the Office des Changes shows 2006 Moroccan exports to 
the U.S. fell below USD 235 million, a 19 percent decrease from 
¶2005.  Both Donnelly and Tazi agreed on the urgent need to reconcile 
the differences.  Marrakchi noted that this Office des Changes data 
is also contrary to Moroccan Industry Ministry data that showed 
Moroccan textile exports to the U.S. in 2006 increased 52 percent 
over 2005. 
 
--------------------------------------------- 
U.S. Issues - Transshipment and Cereal Quotas 
--------------------------------------------- 
 
¶6. (SBU) The differing trade figures also tie into one of the most 
significant outstanding differences in interpretation of the 
agreement: namely, what constitutes permissible transshipment under 
Chapter 5 "rules of origin" provisions.  The U.S. interprets FTA 
requirements to mean that as long as a product does not enter into 
commerce or advance in value, it remains a direct shipment, even if 
it includes transshipment and pre-staging by U.S. exporters in 
European facilities.  By contrast, Moroccan customs officials have 
continued to hold to a much more limited interpretation, arguing 
that transshipments under the FTA must be dispatched following an 
order by a Moroccan customer and cannot be pre-staged by U.S. 
exporters in European facilities.  (Note:  This key point of 
disagreement was last addressed by a DVC and letter from Assistant 
USTR Donnelly to Director General of Customs Abdellatif Zaghnoun in 
July 2007, which Moroccan officials are now studying.  The Moroccan 
side indicated they would reply to the letter in the near future. 
End Note.) 
 
¶7. (SBU) As reported in reftel, Moroccan implementation of wheat 
Tariff Rate Quotas (TRQ) hindered U.S. exports in 2006.  At issue 
was agreement on the timing and method for calculating the annual 
size of the TRQ, Morocco's failure to publish a schedule of tenders 
for use by both importers and exporters, the country's failure to 
re-tender unallocated quota from previous tenders, and the GOM's 
failure to accept all bids from importers who are willing to pay the 
negotiated duty under the TRQ.  Although most of these issues remain 
in 2007, the radical increase in world wheat prices and the 
shortfall in the Moroccan local supply of wheat have resulted in 
more U.S. wheat being sold to Morocco than in 2006.  Although the 
premium normally paid by importers for licenses to import at 
preferential rate under the TRQ was suspended in July 2007, the lack 
of transparency of the Ministry of Agriculture in the management of 
the quota, together with recurring abrupt changes to and 
announcement of wheat duties, continues to add considerable risk to 
importers.  Donnelly emphasized the importance of a meeting of the 
Agricultural Committee of the FTA, in advance of the Joint 
Committee, to consider the full range of these and other 
agricultural issues.  (Note: In private discussions with econoff, 
Marrakchi acknowledged that Morocco's stance on re-tendering is 
unlikely to change, as it is also the approach applied under its 
agreement with the European Union.  Without elaborating, Marrakchi 
also suggested that a separate subcommittee on sanitary and 
phytosanitary measures (SPS) might be useful.  End Note.) 
 
--------------------------------------------- ------ 
Moroccan Issues - GSP and Textile Tariff Reduction 
--------------------------------------------- ------ 
 
¶8. (SBU) During the roundtable meeting with GOM officials, Donnelly 
and Ryckman heard first-hand of Morocco's desire to accelerate 
reduction of textile tariffs and Moroccan desire to restore GSP 
preferences for certain textile and agricultural products.  (Note: 
Following the end of FTA negotiations, Morocco made the textile 
tariff reduction proposal to both the U.S. and the EU.  While the 
U.S. has not formally responded, the EU did so immediately, and 
reached agreement with Morocco on a more preferential tariff 
schedule.  End Note.)  Donnelly explained that the textile tariff 
treatment agreed in the FTA negotiations represented the limit of 
what the U.S. could offer at this time.  Textile trade is a 
sensitive issue with many stakeholders and accelerated tariff 
reductions would not be possible at this time.  He promised a formal 
reply upon his return to Washington, while making very clear that 
the answer would simply reflect the realities he had just laid out. 
He suggested the market access committee meet to discuss both 
requests in the run-up to the Joint Committee meeting. 
 
RABAT 00001397  003 OF 003 
 
 
 
¶9. (SBU) Comment: Post has worked aggressively through 2007 to 
highlight the positive results of the first year of the agreement, 
as reflected in U.S. trade statistics, but the effort has been 
hampered by the fact that Moroccan figures are much less positive. 
An editorial and a lengthy article in a leading business daily just 
this last week argued that the agreement has not delivered the 
promised results, and that "one is obliged to question it" as a 
result.  Post's effort to obtain funding through the Commercial Law 
Development Program (CLDP) for a census team to visit Morocco by the 
end of the year to engage in a "mirroring" exercise to reconcile the 
differing figures, which received support from the USTR team, will 
thus be key to enabling us to continue to tell a positive story that 
resonates with the Moroccan public and to winning Moroccan support 
for a high profile joint committee meeting.  End Comment. 
 
RILEY