VZCZCXRO6597
PP RUEHROV
DE RUEHEG #3023/01 2840936
ZNR UUUUU ZZH
P 110936Z OCT 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 7162
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 CAIRO 003023 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA 
USTR FOR DONNELLY 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PREL IS EG
SUBJECT: EGYPT AND ISRAEL AGREE TO LOWER ISRAELI QIZ 
CONTENT REQUIREMENT 
 
REF: 2006 CAIRO 7219 
 
 ¶1.  (U)  The GOE and Government of Israel agreed on October 
9 to reduce the required level of Israeli content in 
Qualified Industrial Zone (QIZ) exports to the United States. 
 The agreement to lower the content requirement from 11.7 
percent to 10.5 percent came in response to long-standing 
complaints by Egyptian manufacturers that they have been 
unable to meet increasing U.S. demand for QIZ exports, 
primarily ready-made garments, because of a lack of 
economical Israeli inputs such as chemicals, packaging and 
zippers. 
 
¶2.  (U) QIZ exports have grown robustly since the start of 
the program in the spring of 2005, including an 11 percent 
increase in the second quarter of 2007, compared to the 
second quarter of 2006.  Overall exports in 2006 were $627 
million. The growth rate has begun to slow, however, 
constrained in part by a tightening Egyptian labor market 
(reftel) and competition from other textile exporters. 
¶3.  (SBU) The Egyptians have long argued for an 8 -percent 
content requirement to match the terms of the Jordanian QIZ 
agreement. Under the terms of the GOE-GOI-USG QIZ agreement, 
signed in December 2004, changes in the required level of 
Israeli content in QIZ exports do not require USG approval. 
However, the GOE and GOI have made a separate proposal to 
USTR Schwab (septel) to expand the QIZ into certain areas in 
Upper Egypt, which would require USTR approval. Text of a 
letter from the Israeli and Egyptian trade ministers to USTR 
Schwab follows.  Embassy will forward the original to the 
Department. 
 
¶4.  (U) A Ministry of Trade official told econoff that the 
GOE would continue to push for a lower content requirement, 
and in fact Trade Minister Rachid Rachid made the same point 
publicly when announcing the deal.  An Israeli embassy 
contact told Polcouns half-jokingly that the Egyptians will 
not be happy until the requirement is "zero." 
 
¶5.  (SBU) Comment: The lower content requirement could make 
new classes of exports, such as processed food, slightly more 
viable economically under the QIZ program,  although textiles 
will continue to dominate Egyptian QIZ exports.  End comment. 
 
¶6.  (SBU) Begin text of letter to USTR Schwab. 
 
The Government of the Arab 
Republic of Egypt 
 
The Government of the 
State of Israel 
 
H.E. Ambassador Susan C. Schwab 
United States Trade Representative 
Washington D.C. 
 
October 9, 2007 
 
Your Excellency, 
 
      Since the signing of the QIZ Protocol in December 2004, 
the arrangement has proven to be a unique tool in both 
bilateral free trade and regional economic cooperation and 
judging by its results, we may conclude that it is a success. 
 
      In recognizing the importance of Qualified Industrial 
Zones in fostering an environment for international trade and 
investment, economic cooperation, creating new jobs, 
expanding trade, improving technology and enhancing economic 
development we have come to the conclusion that lowering the 
minimum 11.7% Israeli content to 10.5% would further enhance 
the economic ties between our two countries. 
 
      We are confident that you will consider this proposal 
positively.  It is our intention that it will enter into 
force after your approval and upon completion of our internal 
legal requirements. 
 
      Please accept Your Excellency our thanks and the 
assurances of our highest consideration, 
 
Yours sincerely, 
 
Rachid Mohamed Rachid 
Minister of Trade and Industry 
 
CAIRO 00003023  002 OF 002 
 
 
Arab Republic of Egypt 
 
Eliyahu Yishai 
Deputy Prime Minister 
Minister of Industry, Trade and Labor 
State of Israel 
JONES