US embassy cable - 04TELAVIV1729

C O N F I D E N T I A L SECTION 01 OF 03 TEL AVIV 001729 
 
SIPDIS 
 
PLEASE PASS USTR FOR NOVELLI AND SAUMS 
STATE FOR NEA/IPA, EB/TPP/MTA/IPC AND EB/IFD/OMA 
USDOC FOR 4521/HVINEYARD 
USDOC FOR 4520/CLOUSTAUNAU/NWIEGLER 
 
E.O. 12958: DECL: 03/22/2009 
TAGS: ETRD, BEXP, IS, ECONOMY AND FINANCE, LABOR AND COMMERCE, U.S.-ISRAEL RELATIONS 
SUBJECT: TRADE MINISTER OLMERT PROMISES COOPERATION, ACTION 
ON TRADE ISSUES 
 
Classified By: Ambassador Daniel C. Kurtzer for Reasons 1.4 (B) and (D) 
 
1.  (C)  Summary.  Vice Prime Minister and Minister of 
Industry, Trade and Labor (MOIT) Ehud Olmert told the 
Ambassador March 18 that he takes U.S. complaints about trade 
barriers seriously and would seek to correct problems.  He 
said MOIT will be the point of contact on complaints related 
to government procurement and will intercede with other 
ministries if necessary.  Similarly, MOIT will carefully 
review the GOI standards' regime, with the goal of 
introducing U.S. standards whenever possible.  Olmert asked 
his staff to look quickly into the most immediate 
standards-related issue -- the decision to build the new gas 
transmission network using obscure Dutch standards.  Olmert 
insisted that the USG would be pleased with new 
pharmaceutical data protection rules the GOI will unveil 
within the next few weeks.  He said the GOI hoped to be able 
to tap into new FTAs the U.S. had negotiation through 
"cumulation" arrangements.  He complained about Egypt's 
"unreasonable" posture on proposed QIZs.  End summary. 
 
2.  (C)  Olmert told the Ambassador that he requested the 
meeting following the Ambassador's recent public remarks 
about the imbalance in the bilateral trade relationship.  He 
took the remarks seriously, and saw it as his "moral 
commitment" to the U.S. to explore ways how the two 
governments could improve the ability of U.S. companies to 
compete in the Israeli market.  The amount of the U.S. trade 
deficit with Israel is distorted, he said, by the huge amount 
of diamonds Israel exports to the U.S.  Nevertheless, even 
without diamonds, Israel's trade surplus with the U.S. is 
growing.  Olmert cautioned that there were limits to what the 
GOI could do to improve the balance of trade, since 
individual companies, and not the government, make the great 
majority of purchasing decisions.  The Ambassador replied 
that the Embassy had identified three areas where we believed 
governmental action could help "level the playing field" for 
U.S. firms: procurement, standards and IPR. 
 
----------- 
Procurement 
----------- 
 
3.  (C)  The Ambassador said the GOI needed to increase the 
openness and transparency of Israel's government procurement 
process.  He specifically noted problems U.S. firms had 
encountered in bidding on contracts for the Israel Electric 
Company, the Jewish Agency, and the Ministry of Defense.  The 
Ambassador said the common practice of awarding contracts 
without an open and fair bidding process was of special 
concern.  American firms may have won some of these directed 
contracts.  Nevertheless, this approach is fundamentally 
flawed.  A system where the bidder offering the best prices 
and the best services wins the contract would be in 
everyone's interest - the GOI, Israeli consumers, and U.S. 
firms.  The Ambassador urged Olmert to establish a central 
clearing house for all governmental and parastatal tenders, 
and to designate an ombudsman to which U.S. and other firms 
could turn when encountering problems with the GOI 
procurement process. 
 
4.  (C)  In reply, Ronit Kan, Deputy Director General of the 
Ministry, cited examples of what she described as the notable 
success of U.S. companies in obtaining government-related 
business in Israel.  The GOI continuously strives to improve 
its procurement policies, she said.  The Ministry of Finance, 
in particular, was working on ways to make the bidding 
process more open and transparent, so much so that it was 
encountering strong criticism from Israeli companies that 
were angered at the increased foreign competition.  Kan said 
that representatives of American firms, unlike European 
businesspersons, had sometimes been unwilling to travel to 
Israel to promote their products or services, putting them at 
a competitive disadvantage.  The Ambassador responded that 
the U.S. was seeking a level playing field so that those U.S. 
firms that had a presence here and wanted to compete could 
have a fair shot at contracts. 
 
5.  (C)  Minister Olmert said he doubted the creation of a 
central clearinghouse or a designated ombudsman would be 
possible in Israel.  The United States, he said, had no such 
mechanisms either.  The Ambassador replied that the USG has 
strict, enforceable procurement regulations that must be 
abided by.  Olmert said this was, by and large, the case in 
Israel as well.  The GOI, he continued, was willing to 
address any procurement deficiencies identified by the USG. 
He asked that the Embassy provide specifics on any 
procurement problems that companies face, and said that Ronit 
Kan would be the point of contact.  Her office would 
investigate all claims brought by U.S. companies.  If MOIT 
received an unsatisfactory answer from the involved GOI 
agencies, it would insist on a change in policy. 
 
--------- 
Standards 
--------- 
 
6.  (C)  The Ambassador asked that U.S. standards be given at 
least an equal footing with EU and other standards.  He told 
Olmert that U.S. standards institutes and standards 
developing organizations were ready to engage in a dialogue 
with their Israeli counterparts to gain improved acceptance 
of U.S. standards.  The Ambassador also asked Olmert to 
investigate the adoption of an obscure Dutch standard for 
Israel's natural gas pipeline infrastructure.  Olmert said he 
was unaware of the gas standards issue, but promised the 
Ambassador that he would investigate. 
 
7.  (C)  Kan confirmed that Israeli law allows the adoption 
of more than one standard if both standards are accepted 
internationally.  She said the GOI needed a better 
understanding of how U.S. regulatory bodies work, and 
welcomed the Ambassador's message that U.S. regulators were 
seeking a dialogue.  She said EU standards bodies had been 
very active in Israel.  Through the Barcelona Process, an EU 
policy program aimed at strengthening ties between the EU and 
the countries of the Mediterranean Basin, Israel had 
developed a strong understanding, and hence acceptance, of EU 
standards regimes.  The Ambassador agreed to communicate the 
GOI's willingness to discuss standards regimes to the 
relevant U.S. agencies and organizations. 
 
8.  (C)  Olmert, Kan and Yair Shiran, MOIT Director for 
International Affairs, pushed for Mutual Recognition 
Agreements (MRAs) between the United States and Israel. 
Shiran said, for example, that the Israeli Ministry of Health 
accepted the findings of the U.S. Food and Drug 
Administration when approving drugs in Israel, but the FDA 
did not accept MOH findings.  He told the Ambassador that the 
GOI was interested in reaching a mutual recognition agreement 
with the FDA.  The Ambassador said the Embassy would forward 
the Israeli interest to Washington, but added that the GOI's 
position would be greatly enhanced if Israel would adopt an 
acceptable data protection regime (see para 9 below).  The 
Ambassador noted that the Embassy was expecting further 
guidance from Washington in regard to MRAs with Israel. 
 
----------------------------------- 
Protection of Intellectual Property 
----------------------------------- 
 
9.  (C)  Minister Olmert told the Ambassador that the GOI is 
convinced that Israel is living up to its WTO obligations 
regarding the protection of proprietary pharmaceutical data. 
Olmert said the U.S. was "exaggerating" the importance of the 
issue, which in his mind primarily reflected the business 
interests of U.S. pharmaceutical companies.  Still, the GOI 
wanted to find a solution to this problem because it wants to 
make it easier to do business in Israel and because it takes 
USG concerns seriously.  Olmert told the Ambassador that 
there will be a "dramatic change" in Israel's policy.  Shiran 
said that the interagency working group would deliver its 
suggestions to the ministerial level probably by the end of 
March.  Kan added, however, that the group had yet to reach a 
final recommendation on the changes that Israel should make, 
and was still exploring alternative models. 
 
10.  (C)  The Ambassador said the USG had long been puzzled 
by the GOI's policy towards the rights that U.S. music 
companies enjoy when collecting broadcast royalties in 
Israel.  We were disturbed by the GOI's recent submission for 
the current Special 301 review.  If the GOI did not really 
intend to deny national treatment to U.S. music companies, 
then it might consider amending its submission very quickly. 
Olmert said the issue was new to him.  He promised the 
Ambassador that his staff would approach the Ministry of 
Justice, which was responsible for the issue within the GOI, 
and report its findings to the Embassy. 
 
--------------------------------------------- - 
Issues of Concern to the GOI - Rules of Origin 
--------------------------------------------- - 
 
11.  (C)  Kan told the Ambassador that the GOI was "amazed" 
by the tempo with which the U.S. was concluding new free 
trade agreements (FTAs).  Israel was concerned that these 
agreements were causing an erosion of Israel's competitive 
position in the U.S. market.  Kan told the Ambassador that 
the GOI hoped that Israeli content would be accepted when 
another U.S. FTA partner calculated the minimum content 
requirement needed to enjoy duty free access to the U.S. 
market.  Olmert added that the GOI was particularly 
interested in such treatment for textile products. 
 
12.  (C)  The Ambassador told Olmert and Kan that the GOI 
should bring the issue up at the planned April meeting of the 
U.S.-Israel Joint Economic Committee.  He added, however, 
that the GOI should understand that it would need to make a 
compelling case - it should not expect this to be an easy 
sell in Washington.  The Ambassador said the GOI might find a 
more positive response if it focused on the new FTA trading 
partners of the U.S. in the Middle East.  As part of its 
economic agenda in the Middle East, the United States was 
interested in improved economic cooperation between those 
countries in the region that were willing and able to sign 
FTAs with the U.S.  Olmert replied that Israel was interested 
in a broader solution, whereas Kan added that Mexico and the 
CAFTA countries were the most interesting cumulation partners 
for Israel. 
 
------------- 
Egyptian QIZs 
------------- 
 
13.  (C)  The Ambassador said the USG takes the view that the 
GOI should engage in a Qualified Industrial Zone (QIZ) 
agreement with Egypt if it believes that such cooperation 
would be in Israel's commercial and political interest.  At 
the same time, he urged the GOI to "widen its lens" and 
consider the broader benefits that QIZs could bring to 
Israel's relations with Egypt.  Olmert replied that, on 
balance, it was questionable whether QIZs with Egypt had any 
real economic benefits for Israel.  Many Israeli companies 
were scared by the potential competition from Egyptian QIZ 
companies. 
 
14. (C)  Olmert added that it was "unthinkable" that the GOI 
would immediately give Egypt the same benefits -- i.e. 8% 
minimum Israeli content -- that Jordan now enjoys.  The 
Jordanians received this low input concession only after 
several years of productive, fruitful cooperation.  Egypt had 
also made the process difficult for Israel, he said.  At 
first the GOE was unwilling to talk to the GOI directly, but 
sent businessmen as surrogates.  "Just because Mubarak is now 
in a different mood won't compel us to act and give them what 
they want", he told the Ambassador.  Nevertheless, Olmert 
said the GOI was willing to compromise.  He believed that an 
agreement would eventually be signed. 
 
------- 
Comment 
------- 
 
15.  (C)  This was a positive and constructive meeting, but 
the jury is still out on the GOI's commitment to take the 
sustained action needed to remove trade barriers.  We are 
encouraged by Olmert's pledge of cooperation on procurement 
and standards issues, but recognize that improvement in these 
areas is likely to require continued and persistent pressure 
before real changes will become evident.  One indication of 
the GOI responsiveness will be the government's action in 
regard to Israel's natural gas transmission system   Key 
tests on IPR will be the level of protection offered by 
Israel's promised new data protection policy and a positive 
resolution of the broadcast royalties issue.  End comment. 
 
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