US embassy cable - 04TELAVIV1683

UNCLAS SECTION 01 OF 04 TEL AVIV 001683 
 
SIPDIS 
 
SENSITIVE 
 
USDOC FOR 500/KJUSTER/AKUNTAMUKKALA 
USDOC FOR 1000/GALDONAS 
USDOC FOR 4521/HVINEYARD 
USDOC FOR 4520/CLOUSTAUNAU/NWIEGLER 
USDOC FOR 3131/BORR/GLITMAN 
STATE FOR IPA/DGREENE 
 
E.O. 12958: N/A 
TAGS: ETRD, BEXP, KIPR, KWBG, IS, LABOR AND COMMERCE, ECONOMY AND FINANCE, U.S.-ISRAEL RELATIONS 
SUBJECT: COMMERCE U/S JUSTER RAISES TRADE ISSUES AND 
LOOKS AT  EXPORT LICENSING REGIME 
 
This message is sensitive but unclassified. Please 
handle accordingly. 
 
1. (SBU) SUMMARY. In a visit to Israel March 2-4, Under 
Secretary of Commerce Kenneth I. Juster, head of the 
 
SIPDIS 
Bureau of Industry and Security (BIS), met with high- 
ranking Israeli officials, as well as with both Israeli 
and American leaders from the private and public 
sectors in Israel's hi-tech and defense industries. 
U/S Juster discussed U.S.-Israel cooperation in the 
area of high-technology trade, held meetings with BIS's 
Israeli counterparts in the MoD, and met with leading 
private and public sector players in Israel's 
sophisticated hi-tech and defense sectors.  Throughout 
the meetings with GOI officials, Juster raised U.S. 
government concerns about the worsening U.S. trade 
deficit with Israel.  The U/S urged Israeli government 
officials to reexamine specific policies and practices 
that restrict the ability of U.S. companies to compete 
in Israel and also adversely affect the interests of 
Israeli consumers.  In particular, Juster discussed 
certain Israeli procurement practices that fail to 
promote transparent and fair competition, the lack of 
protection of certain intellectual property rights, and 
the need for enacting technical standards and 
regulations that do not discourage U.S. companies from 
competing for business in Israel.  END SUMMARY. 
 
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Meeting with Vice Prime Minister Olmert 
-------------------------------- 
 
2. (SBU)  Under Secretary Juster told Vice PM and 
Minister of Industry and Trade Olmert that he was 
"alarmed" by the rising U.S. trade deficit in Israel, 
which was almost $6 billion in 2003, especially at a 
time when the EU has a very large trade surplus with 
Israel.  Israel should take steps to remove the 
obstacles to U.S. exports, such as inadequate 
protection of intellectual property -- especially 
protection of proprietary pharmaceutical data -- non- 
transparent government procurement procedures, and the 
use of technical standards as a non-tariff barrier to 
trade. 
 
3. (SBU)  Olmert responded that the Ambassador has 
pushed these issues very hard with the Government of 
Israel.  It is nonetheless difficult, he said, to 
change trade patterns easily, because Israel is an open 
private economy and purchasers can buy products from 
wherever they like.  He said, however, that he is open 
to ideas about how to reduce the U.S. trade deficit and 
asserted that there has been progress on trade issues. 
All of the obstacles to signing a new bilateral 
agricultural agreement have been removed and, according 
to Olmert, the agreement should be finalized soon. 
 
4. (SBU)   Turning to IPR, he noted that Israel has 
formed an interministerial committee, comprised of 
MOIT, Health and Justice, to look closely at the data 
protection issue.  The committee will make 
recommendations by the end of the month and the USG 
should expect "good news."  Olmert did not provide 
specifics, but said the GOI will "move in the direction 
of your expectations."  "Speaking frankly," Olmert 
said, "I don't think your complaints are right." 
Nevertheless, the GOI has decided to reconsider its 
previous positions on the matter, in order to make it 
easier for U.S. firms to operate in Israel. 
 
5. (SBU)  Turning to procurement and standards issues, 
Olmert said he wants to arrange a meeting with the 
Ambassador to review specific ideas the U.S. may have. 
Olmert said that the GOI desires a less "lopsided" and 
more collaborative trade relationship.  (A meeting 
between Olmert and the Ambassador has been set up for 
mid- March.) 
 
6.  (SBU)  Olmert noted that Israel has a few trade 
issues of concern as well. These include the difficulty 
that Israeli firms have had getting access to U.S. 
government homeland security-related procurement.  U/S 
Juster said he would look into it and made the point 
that openness and transparency in the procurement 
process on both sides would be beneficial.  Olmert also 
noted that the U.S. has negotiated, or is in the 
process of negotiating, a number of new free trade 
agreements.  Israel is interested, he said, in tying 
into those agreements through favorable treatment under 
rules of origin.  He asked U/S Juster to convey these 
views to USTR Zoellick.  Finally, Olmert raised the 
problem that the Israeli firm Checkpoint has been 
having in gaining USG approval for the purchase of a 
U.S. company.  Olmert said that the deal has been 
signed off on by all USG agencies, except the 
Department of Homeland Security.  U/S Juster replied 
that the purchase was being considered by the USG and 
that an interagency group would make the decision.  He 
promised to convey Olmert's views to Washington. Olmert 
said that he planned to call Secretary Ridge about the 
issue. 
 
--------------------------------------- 
The Arab Boycott and the WTO 
--------------------------------------- 
 
7.  (SBU) Olmert noted that several countries in the 
region, most notably Saudi Arabia, had expressed 
interest in joining the WTO.  He stressed that it was 
important that each candidate for WTO membership 
commit, in writing, not to support any boycott against 
Israel, as a prerequisite for joining the organization. 
U/S Juster, noting that he is responsible for Arab 
boycott issues at the Department of Commerce, said the 
USG agreed that endorsement of a boycott was 
inconsistent with WTO membership. 
 
-------------------------------------------- 
Olmert Says the Jawwal Problem Will Be Solved 
-------------------------------------------- 
 
8. (SBU):  U/S Juster noted that the USG remains 
concerned that equipment bound for the Palestinian 
telecommunications company Jawwal continues to be held 
up at Israeli ports.  Olmert said that he is well aware 
of the issue, and has talked to Jawwal Chairman Zahi 
Khouri about the problem at length. Olmert promised 
that the goods would be released soon. (Note: key 
components Jawwal needs to upgrade its infrastructure 
have been held up for months despite GOI assurances to 
the embassy that the parts would be released.) 
 
 ---------------------------------------- 
Breakthrough on Gas Pipeline Standards Issue? 
----------------------------------------- 
 
9. (SBU)  At a working luncheon hosted March 2 by the 
Ministry of National Infrastructure, U/S Juster noted 
the fact that MNI's decision to build Israel's new 
natural gas transmission pipeline under a little-known 
Dutch standard had disadvantaged U.S. firms in bids for 
up to $500 million in contracts.  This was a prime 
example, he said, of how technical standards act as a 
serious non-tariff barrier.  MNI Director General Eli 
Ronen and other MNI officials initially stated that it 
was far too late to change the standard now.  Later 
during the lunch, however, Ronen said that it "might be 
possible" to get the selection of the standard 
reexamined.  Ronen's assistant later told Emboffs that 
many officials in MNI had come to the conclusion that 
using the Dutch standard was a mistake and hoped the 
USG would petition PM Sharon on the issue.  He noted, 
however, that there remained many vested interests 
supporting the Dutch standard. 
 
------------------------------------- 
Israeli MOD on the Israeli Export Control Regime 
--------------------------------------- 
 
10. (SBU) On March 3, Ministry of Defense (MOD) 
officials, led by Director General Amos Yaron, gave U/S 
Juster a detailed, two-hour presentation about the MOD 
role in defense export controls.  Ehud Ben-Aharon, head 
of the MOD defense export control office, reviewed the 
legislative basis for MoD's authority to regulate the 
export of defense articles and described its current 
scope of control and overall GOI defense export control 
policy.  He provided a step-by-step account of the 
process for issuing to would-be exporters the two key 
authorizing documents: a negotiation permit, which must 
ultimately be signed by the Director General, and the 
export license, signed by the Director of SIBAT, the 
MOD Foreign Defense Assistance and Defense Export 
Division.  Ben-Aharon drew special attention to the 
requirement for exporters of U.S.-origin components to 
present their U.S. re-export licenses.  Deputy Director 
Meir Shalit of SIBAT followed with a presentation on 
GOI controls on the export of cryptographic technology. 
While MOIT generally issues export licenses for dual- 
use technology, MOD has authority over the export of 
dual-use cryptographic technology.  Shalit noted that 
the GOI controls the export of about 1,800 
cryptographic products and issues more than 100 export 
licenses a year in the sector. 
--------------------------------------- 
AmCham Members Share Views 
--------------------------------------- 
 
11. (SBU)  At a breakfast meeting on March 4 with 
AmCham officials and representatives from Intel, 
Lockheed Martin, Samedan, IBM, and National 
Semiconductor, U/S Juster repeated USG concerns about 
the trade deficit, technical standards, and certain GOI 
tendering practices.  The representatives shared their 
views about doing business in Israel, which were quite 
positive in general, and noted that U.S. firms already 
operating in the country tend not to be affected as 
much by the problems with tenders and standards as 
those firms seeking to enter the market. The Lockheed 
representative pointed to $500-600 million of business 
in Israel over 10 years, almost all through joint 
ventures with Israeli companies and resulting in 
exports to other countries.  One company representative 
raised the issue of linking USG financial assistance to 
Israel to progress on Israeli trade practices of 
concern.  The IBM rep proudly noted his firm's presence 
in Israel for 54 years.  (Note: IBM's first research 
facility to be located outside North America was in 
Israel.)  The National Semiconductor representative 
asked the U/S to tell "the home office" it is safe to 
come to Israel.  Miron-Wapner of the USDOC-supported 
United States - Israel Science and Technology 
Commission pointed to the strength of life-science 
industries in Israel and asked how such firms could 
help promote the USG's message.  The Senior Commercial 
Officer explained the objectives of the AmCham's Forum 
of U.S. Companies in Israel, which the Embassy actively 
supports, and its ad-hoc committees on IPR, Standards 
and Regulations, Public Procurement, and Taxation/Work 
Permits.  AmCham President Zalman Shoval concluded the 
meeting by suggesting that the Chamber might organize 
"reverse trade missions" to the United States in order 
to highlight large upcoming infrastructure projects in 
Israel. 
 
 ----------------------------------- 
PM Bureau Chief:  Putting our Money where our Hearts 
Are 
------------------------------------- 
 
12. (SBU)  In a March 4 meeting with Chief of the Prime 
Minister's Bureau Dov Weissglas, the U/S again conveyed 
USG concerns about Israeli trade practices that 
discourage U.S. companies from competing for business 
in Israel.  In response, Weissglas stated that a 
"ministerial committee has been formed to examine 
across the board the source of why U.S. firms don't get 
a fair deal" and promised that it is the intention of 
the government to "react with our wallets the same way 
we do with our hearts" toward the United States. On 
IPR, Weisglass explained the basis of Israeli patent 
law in the British tradition, but finally indicated 
that "out of intellectual curiosity, [he] would see if 
there is some way to amend the law." 
 
--------------------------------------------- ------ 
Juster Conveys Concerns to MFA Officials 
--------------------------------------------- ------ 
 
13. (SBU)  U/S Juster also broached bilateral trade 
issues in his March 4 meeting with Yossi Gal, MFA 
Deputy Director General for Economic Affairs, and Yoram 
Ben-Ze'ev, MFA Deputy Director General for North 
America.  The existence of a sizable U.S. trade deficit 
with Israel at the same time as the EU enjoyed a large 
surplus was an anomaly, Juster said.  Israel should 
address U.S. trade concerns, he said, since it is not 
in either country's interest that this is an issue in 
our bilateral relations.  The USG is not asking that 
Israel favor one country over another; rather, the USG 
and U.S. companies are only expecting a level playing 
field. 
14. (SBU)  Juster recounted his visits to U.S. hi-tech 
companies active in Israel and cited hi-tech as a 
successful example of U.S./Israeli cooperation. 
Additional opportunities exist in the biotech and life 
science fields, he said, adding that U.S. 
pharmaceutical firms are interested in increasing their 
engagement in Israel. However, the country's lack of 
protection for proprietary test data remains a serious 
problem in the bilateral trade relationship, he said, 
and he told Gal and Ben-Ze'ev that the GOI must now 
finally address the problem. 
 
----------------------------------------- 
Economic Consequences of Security Measures 
----------------------------------------- 
 
15. (SBU) Responding to a question by Gal, Juster 
confirmed that he had met with PA officials and 
Palestinian business people.  He said he delivered a 
strong message to PA Minister Maher al-Masri that the 
PA must finally address security issues.  Al-Masri 
replied that he understood that the PA must act. 
Juster added that Al-Masri also addressed the economic 
difficulties created by Israeli security measures. 
Juster also recounted his visit to the Palestinian 
telecommunications firm Jawwal.  Jawwal appears to be a 
good corporate business model, but IDF security 
measures had caused Jawwal economic problems, he said. 
He told the GOI officials that they should consider the 
economic side effects of any security measures. 
 
----------------------------------- 
Greater Middle East Initiative 
----------------------------------- 
 
16. (SBU)  Ben-Ze'ev addressed the Greater Middle East 
Initiative.  In the GOI's eyes, the breadth of the 
initiative makes it a task for the entire coming 
generation, he told Juster.  Israel is concerned 
whether the USG will have the staying power to stay 
focused on implementing the initiative, particularly if 
there should be a change in the U.S. administration. 
In order for the initiative to gain acceptance in the 
broader Arab world, Ben-Ze'ev said, the USG should 
ensure that it does not appear to be imposed from the 
outside.  In addition, Ben-Zeev cautioned against 
linking progress on implementation of the initiative to 
progress in solving the Israeli/Palestinian conflict. 
The conflict has nothing to do with "illiteracy in 
Yemen," Ben-Ze'ev said.  Juster said that the USG is 
now gathering comments on the initiative, and is aware 
of such concerns.  However, action is needed, since the 
status quo is unacceptable.  There should be progress 
on all aspects of the initiative simultaneously, he 
told his GOI interlocutors. 
 
Undersecretary Juster has cleared this cable. 
Kurtzer