Reference ID: 08CAIRO2409    

Created: 2008-11-24 14:14       

Released: 2011-08-30 01:44    


Origin: Embassy Cairo




DE RUEHEG #2409/01 3291414


R 241414Z NOV 08














E.O. 12958:  N/A





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.



¶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.