VZCZCXRO0983
PP RUEHROV
DE RUEHEG #1048 1431417
ZNR UUUUU ZZH
P 221417Z MAY 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 9321
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS CAIRO 001048 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA 
USTR FOR MOWREY AND FRANCESKI 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958: N/A 
TAGS: ECON ETRD IS EG
SUBJECT: EGYPTIAN QIZ EXPORTS LEVEL OFF IN FIRST QUARTER 
2008 
 
REF: CAIRO 364 
 
Sensitive but unclassified, not for Internet distribution. 
 
¶1.  (U) SUMMARY: Egyptian exports to the United States under 
the Qualified Industrial Zone (QIZ) agreement leveled off in 
the first quarter of 2008 to $169 million USD.  GOE and 
Government of Israel trade officials continued to push for 
QIZ expansion into Upper Egypt at the quarterly QIZ meeting 
in Cairo on May 19.  Two non-textile companies were among 
those newly certified for QIZ export.  Despite criticism of 
the program by opposition parliamentarians, the GOE continued 
to publicly seek foreign investment for QIZ factories.  END 
SUMMARY. 
 
¶2.  (U) After QIZ exports dropped sharply in the last quarter 
of 2007 because of seasonal factors and sluggish US demand, 
QIZ exports rose in the first quarter of 2008 to a level 
2-percent higher than the same period a year earlier, 
suggesting that exports under the three-year-old program are 
leveling off under current conditions.  Israeli exports to 
Egypt under the agreement fell 8 percent to $18 million, 
consistent with the GOE-GOI agreement in October 2007 to 
reduce the required level of Israeli content in Egyptian QIZ 
exports to 10.5 percent. 
 
¶3.  (U) At the quarterly meeting of the joint GOE-GOI QIZ 
committee May 19, GOE co-chair Sayed el-Bous and GOI co-chair 
Gabby Bar continued to argue in favor of QIZ expansion into 
Upper Egypt and asked about the status of the GOE-GOI request 
to USTR to approve expansion.  We noted that USTR Susan 
Schwab and GOE Minister of Trade Rachid Rachid had discussed 
the issue in Sharm al-Sheikh on May 18 and that the request 
remained under active consideration. 
 
¶4.  (U) The GOE reported at the meeting that seven new 
companies had qualified for QIZ export: five textile 
producers, one food processor, and one tableware producer. 
The food company, Deyhdrofoods, told us after the meeting 
that they expect to begin exporting dried vegetables within 
several months and quadruple their current production by the 
end of 2009, thanks to the QIZ program.  The company expects 
to purchase Israeli packaging material to meet the content 
requirement. 
 
¶5.  (U) El-Bous argued at the meeting that further reductions 
in the Israeli content requirement are necessary to encourage 
more non-textile companies to participate in the program 
because they cannot make economical use of the current 
required levels of Israeli inputs.  Bar responded that the 
GOI will help any Egyptian industrialist having trouble 
finding enough Israeli content to locate appropriate Israeli 
suppliers. 
 
¶6.  (U) Regardless, the economics of the QIZ program continue 
to heavily favor textile producers, who account for more than 
99 percent of QIZ exports.  While more than 500 US companies 
have purchased QIZ products during the three years of the 
agreement, the top three companies -- Gap, Walmart, and Levi 
Strauss -- imported a third of all QIZ production, primarily 
jeans and other pants. 
 
¶7.  (U) The same day of the meeting, local press reported 
demands by 35 independent, Muslim Brotherhood, and opposition 
party parliamentarians for the GOE to freeze the QIZ 
agreement and other trade with Israel.  Such demands have 
been routine throughout the life of the program, however. 
The next day, local press carried a statement by Ali Awni, 
head of the GOE QIZ unit, that the GOE is starting a campaign 
to encourage Eastern European investment in QIZ factories. 
 
¶8.  (SBU) Comment: The latest export results are consistent 
with our view that the QIZ agreement is maturing; the 
dramatic export growth rates of the first two years have come 
to an end (reftel).  We believe that QIZ expansion into Upper 
Egypt is necessary to further expand the benefits of the 
agreement -- cooperation between Egypt and Israeli and 
creation of Egyptian jobs in a needy and restive region. 
SCOBEY