VZCZCXRO2299
PP RUEHROV
DE RUEHEG #3305/01 3251135
ZNR UUUUU ZZH
P 211135Z NOV 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 7499
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 CAIRO 003305 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB, NEA/ELA 
USTR FOR DONNELLY/MOWREY 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KTEX EG IS
SUBJECT: EGYPT, ISRAEL JOINTLY PRESS FOR QIZ EXPANSION 
 
REF: A. CAIRO 3022 
     ¶B. CAIRO 3023 
     ¶C. 2006 CAIRO 7219 
 
Sensitive but unclassified, not for Internet distribution. 
 
¶1.  (U) SUMMARY: Egyptian and Israeli trade negotiators and 
industrialists sought USG approval of their joint proposal to 
expand the Qualified Industrial Zone (QIZ) into Upper Egypt 
during the quarterly meeting of the QIZ joint committee Nov. 
18 in Cairo.  The committee also sought clarification of the 
USG position on a GOE-GOI agreement to reduce the required 
level of Israeli content in QIZ exports.  We responded that 
the USG does not need to approve the agreement but that a 
formal response from USTR is expected.  QIZ export growth 
slowed in the third quarter of 2007, according to statistics 
released at the meeting, while an Israeli official said 
several Israeli exporters lost interest in the program as the 
declining dollar made exports to Europe more lucrative.  END 
SUMMARY. 
 
------------- 
QIZ Expansion 
------------- 
 
¶2.  (U) In the first meeting of the QIZ committee since the 
GOE and GOI agreed to reduce the Israeli content requirement 
and request USG approval for a QIZ expansion (refs A and B), 
the committee pressed for speedy USG consideration of the 
expansion proposal.  GOI co-chairman Gabby Bar said that 
Israeli businessmen sought QIZ expansion to compensate for an 
expected loss in sales to Egypt following the agreement to 
reduce the required level of Israeli content from 11.7 to 
10.5 percent. 
 
¶3.   (U) Egyptian co-chair Sayed El-Bous argued that the 
expansion could help Egyptian industrialists expand QIZ 
production beyond ready-made garments into areas such as 
furniture, leather, plastics, and chemicals, although the 
economics of the arrangement make such an expansion 
difficult. (Note: Unless Egyptian exporters are able to 
purchase enough low-priced Israeli inputs, their increased 
costs for the Israeli content will exceed their duty-free 
savings. End note.) Ali Awni, director of the GOE's QIZ Unit, 
noted that low US tariffs for many products further limit the 
possibilities for QIZ exports because the tariff-free benefit 
is less lucrative for such products. 
 
¶4. (U) Even so, several Egyptian industrialists are 
considering new investments in non-textile factories if the 
QIZ expands to Upper Egypt.  Ali Moussa, chairman of the 
Cairo Chamber of Commerce and owner of a food-processing 
company, told econoff before the meeting that he and other 
investors had prodded the GOE to seek QIZ expansion to 
facilitate food-processing investments in Upper Egypt.  Anis 
Aclimandos, president of TransCentury Associates, said he had 
been approached by Israeli rubber manufacturers seeking to 
export rubber seals for various new QIZ products.  Dan 
Catarivas, Director of the World Trade Center of Israel, told 
the committee that Israeli and Egyptian businessmen should 
jointly investigate possibilities for expanding QIZ 
production beyond textiles. 
 
--------------------------- 
Israeli content requirement 
--------------------------- 
 
¶5.  (U) Bar and El-Bous also sought USG reaction to the 
agreement on Israeli content.  We noted to the committee that 
USG approval of the content agreement is not necessary, but 
that the USG welcomes the agreement in any case and that a 
formal response from USTR is expected. 
 
------------------ 
QIZ growth slowing 
------------------ 
 
¶6.  (U) QIZ exports in the third quarter of 2007 reached USD 
$188 million, a 2.9 percent increase from the second quarter 
of 2007.  However, that rate of growth was less than the 9.5 
percent increase from the first to the second quarter, as 
well as the 7.9 percent increase in the comparable period in 
¶2006.  With the exception of a nominal amount of food exports 
-- USD $101,000, or far less than 1 percent of the total -- 
all of the exports were in ready-made garments and textiles, 
including 57 percent for jeans and other pants. 
 
 
CAIRO 00003305  002 OF 002 
 
 
¶7.  (U) Israeli exports under the program rose 5.6 percent to 
USD $22 million in the third quarter of 2007.  Catarivas said 
that although overall Israeli exports rose, several Israeli 
companies that had been participating in the program decided 
to focus their efforts instead on Europe because of the 
decline in value of the dollar relative to the euro.  Awni 
added after the meeting that Egyptian MoT statistics 
indicated the declining dollar was diverting some Egyptian 
exports from the United States to Europe, a partial 
explanation for the slowing QIZ growth.  Tight labor markets 
in existing QIZ areas also appear to be a continuing 
constraint on the growth of the program (ref C). 
RICCIARDONE