VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #2409/01 3291414
ZNR UUUUU ZZH
R 241414Z NOV 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 0917
INFO RUCPDOC/USDOC WASHDC 0429
RUEHBR/AMEMBASSY BRASILIA 0078
RUEHNE/AMEMBASSY NEW DELHI 0306
RUEHSA/AMEMBASSY PRETORIA 1378
RUEHTV/AMEMBASSY TEL AVIV 1799

UNCLAS CAIRO 002409 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ETRD EINV ECON EAGR PREL EG
SUBJECT:  TRADE OFFICIAL ON GOE ECONONIC REFORM, TRADE STRATEGY, 
US-EGYPT BILATERAL TRADE RELATIONS 
 
Sensitive but unclassified.  Please handle accordingly. 
 
¶1.  (SBU)  SUMMARY: In a November 13 meeting with Commerce DAS for 
Services Mark Brady, Ministry of Trade and Investment First Advisor 
Samiha Fawzy said that Egyptian was not interested in a new 
bilateral investment treaty (BIT) with the U.S., and that Egypt must 
"maintain the FTA as an overall objective for political reasons." 
She said Egypt's priority is to expand their markets beyond the 
U.S., EU and the region.  Fawzy said Egypt's new focus is on 
improving trade relations with India, South Africa and Brazil. 
Fawzy's comments echo recent public remarks by former Egyptian 
Ambassador to the US Nabil Fahmy, in which he said the incoming 
Administration and Congress were unlikely to make FTA negotiations a 
priority, and that Egypt's trade and investment relationship with 
the U.S. was successful even without an FTA.  Based on Fawzy's other 
remarks, and the attitude of other GOE contacts, however, the GOE 
wants to work with the USG to address outstanding trade and access 
issues such as IPR, agricultural, and standards on a more practical 
level.  If we do wish to re-engage on trade within a formal 
structure, we may need to re-package TIFA or the US-Egypt Business 
Council into a new format so as to gain GOE support. 
END SUMMARY 
 
¶2.  (SBU)  On November 13, visiting Commerce DAS for Services Mark 
Brady and Office Director for Services R.J. Donovan met with 
Ministry of Trade and Industry (MTI) First Advisor Samiha Fawzy to 
discuss bilateral cooperation on trade, progress on economic reform 
and Egypt's overall trade strategy.  MTI's Mona El Garf, along with 
Commercial Attache and econ counselor (notetaker) also participated. 
 DAS Brady raised two ongoing issues, a problem Coca Cola has 
encountered with a former bottler continuing to produce under the 
Schweppes label, and concerns that Nike has expressed about Egyptian 
labeling requirements (septel). 
 
¶3.  (SBU) Fawzy opened by saying the Government of Egypt (GOE) has 
made a lot of progress on economic reform, is on the right track, 
but needs to do more.  Social and cultural changes necessary for 
real success, she said, including eradicating illiteracy and 
poverty, remain a challenge.  She described the need to convince 
people that a free market is good, to encourage Egyptians across the 
economic spectrum to participate in the market, and to make sure 
positive results are felt by everyone.  In Fawzy's view, much of the 
country is still caught in the past fifty years of socialist 
policies.  The government, she said, also has to look more closely 
at the question of managing and sequencing of the reforms.  She 
cited the need for the media to play bigger role in educating the 
public.  "We were not doing enough on this," she observed. 
 
¶4.  (SBU)  According to Fawzy, the GOE is considering a package of 
quick reforms to regain momentum.  She acknowledged that the reform 
process had been drifting in recent months, but that it is now 
essential to move forward.  The package includes a commitment not to 
raise energy prices, either for fuel or electricity, through 
end-2009.  Also, the GOE wants to focus on raising overall 
productivity and finding ways to promote exports, provide incentives 
for export-linked jobs, and support Egyptian participation in 
international exhibitions. 
 
¶5.  (SBU)  In terms of the impact of the financial crisis, she said 
that the Egyptian banking system is sound, and that recent rating 
agency reports support the GOE contention that there are no serious 
problems in the banking sector.  This, she said, gives Egypt hope 
that investment from the Gulf will continue.  MTI Minister Rachid 
has been in the Gulf for the past two weeks to promote continued 
investment by the sovereign wealth funds in Egypt.  When asked about 
the impact of the crisis on growth, she noted the Central Bank is 
"running different scenarios" had not yet shared them with the rest 
of the government.  She said the GOE is still hoping that impact 
will be limited to a reduction in growth from 7 to 5 percent in the 
2008-09 period. 
 
Egypt's Trade Strategy 
---------------------- 
¶6.  (SBU)  The GOE also is working to diversify beyond its 
traditional partners, the U.S., Europe and the region.  Egypt's new 
strategy focuses on India, South Africa and Brazil.  President 
Mubarak and Minister of Trade Rachid were in India the week of 
November 16 and signed an economic cooperation framework agreement, 
as well as cooperation agreements on SMEs, and technical transfer. 
Egypt is talking to MERCOSUR about an FTA, with Brazil in the lead 
on the MERCOSUR side.  In December, Rachid will travel to South 
Africa, and is also looking to increase trade with Sudan and 
Nigeria.  Egypt, Fawzy said, has successfully expanded trade with 
Russia and central Asian states such as Kazakhstan.  FTA 
negotiations with the EU continue and, Fawzy said, are focused on 
services.  The EU has identified the key sectors of finance, 
 
telecommunications, computer services, postal and courier services, 
maritime and transport and e-commerce.  The GOE does not have a 
final negotiating list, but is interested in distribution, 
transportation and infrastructure and storage. 
 
US-Egyptian Trade Relations 
------------------------- 
¶7.  (SBU) In response to a question about cooperation with the 
United States, Fawzy cited the success of the QIZ agreement.  This 
agreement, she said, was a "good step," both for trade and the 
region.  She said the exports under the QIZ allowed Egyptian workers 
and their families to realize real economic benefits from the peace 
process.  Fawzy reiterated Egypt's request for QIZ expansion to 
Upper Egypt, noting that this was the poorest and most vulnerable 
region of the country.  She said investors are not interested in 
going there, despite government investment incentives, anhat the 
additional impetus provided by a QIZ-like arrangement was needed. 
 
¶8.  (SBU) Fawzy also suggested that the U.S. and Egypt work together 
to promote investment but was adamant that this did not mean that 
Egypt was interested in negotiating a BIT.  She said that a BIT was 
not in Egypt's interest, that the GOE would not negotiate a new BIT 
outside an FTA, that there was no "logic" to this and that BIT 
negotiations had been "refused" by the government.  Her comment was 
that the U.S. and Egypt had been talking seriously about an FTA and 
that politically the GOE "cannot lower its ambitions."  She said 
that Egypt must "maintain the FTA as an overall objective for 
political reasons" and cannot go to the public and say that Egypt 
would do a BIT instead.  She expressed appreciation for the QIZ 
program, and access to U.S. markets for Egyptian goods through GSP. 
 When asked if there was any particular sector among the fourteen 
covered by the TIFA agreement that Egypt would be interested in 
discussing, she was adamant that Egypt was not interested. 
 
¶9.  (SBU)  On the other hand, Fawzy said, Egypt wants to work with 
the U.S. on more concrete issues, such as franchising.  She would 
like to see a new franchise law for Egypt to facilitate the entry of 
new companies.  The ministry has already assembled a team that 
includes legal, private sector and government representatives, and 
plans a public awareness effort.  In her view, franchising would 
improve service delivery, and the overall efficiency of the internal 
Egyptian market.  She sees improved services, including 
distribution, logistics, transportation, the supply chain and 
storage, as an important input into the productive sector.  Egypt's 
current distribution and transportation network is limited and 
expensive.  Due to a lack of market structure and competition, 
prices are higher and goods are scarcer outside Alexandria and Cairo 
than they should be.  The limits of the network also affect the 
ability of potential producers in Upper Egypt to get goods to 
market.  A more efficient internal market, the GOE believes, will 
help the average Egyptian benefit from reform. 
 
¶10.  (SBU) COMMENT:  Fawzy's comments about formal trade 
negotiations echo remarks made publicly a few days ago by recently 
returned Egyptian Ambassador to the U.S. Fahmy.  In a speech to the 
AmCham, Fahmy said that the incoming Democratic Administration and 
Congress were unlikely to make any FTA negotiations a priority, and 
that Egypt's trade and investment relationship with the U.S. was 
highly successful even without an FTA.  Other GOE officials have 
told us that Egypt is not interested in a BIT at this time.  Fawzy's 
comments to us last week were the most definitive and detailed 
explanation we have had on precisely why the GOE is not interested 
in formal negotiations, short of an FTA.  If we do wish to re-engage 
on trade within a formal structure, we may need to re-package TIFA 
or the US-Egypt Business Council activities into a new format so as 
to gain GOE support. 
 
¶11.  (SBU)  COMMENT CONT:  In the meantime, the GOE is willing to 
work with the USG to address outstanding trade and access issues on 
a more practical basis.  For example, we continue to engage on IPR 
issues within the context of the Watch List process.  MTI is talking 
to USAID-funded technical experts about market access issues such as 
the labeling requirement that Nike has complained about (septel). 
Fawzy acknowledged Egypt is under pressure from the EU to bring its 
trade and regulatory regime closer to the EU acquis, but said Egypt 
did not want to limit itself and continue to focus instead on 
international, rather than European, standards.  USAID and FCS are 
involved in this effort to maintain access for U.S. goods, including 
by supporting cooperation between the American National Standards 
Institute (ANSI) and the new Egyptian standards agency.  In the 
agriculture sector, we are gaining additional access for more 
food-related products as we chip away at technical barriers, 
including live dairy cattle, whole chickens, and poultry byproduct 
meal (for cattle and poultry feed).  USG support for Egypt's new 
food safety agency, which will base its evaluations on a 
risk-management approach, rather than on the precautionary 
 
principle, has helped.