US embassy cable - 04TELAVIV2039

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 002039 
 
SIPDIS 
 
USTR FOR NOVELLI AND SAUMS 
 
E.O. 12958: DECL: 04/02/2014 
TAGS: ETRD, ECON, PREL, EG, IS, ECONOMY AND FINANCE, GOI EXTERNAL, LABOR AND COMMERCE 
SUBJECT: GOI DISCUSSES NEXT STEPS ON ISRAEL-EGYPT QIZ 
 
REF: CAIRO 2601 
 
Classified By: DCM Richard LeBaron for Reasons 1.4 (B) and (D) 
 
 
 1. (C)  Summary and Action Request.  Gabbi Bar, Deputy 
Director General in the Ministry of Industry, Trade and Labor 
confirmed to us April 2 that Israel and Egypt had agreed to 
11.7% minimum Israeli content for all Egyptian QIZ products. 
Bar said the next step is a meeting in Athens April 14, where 
the two sides will try to hammer out a draft agreement.  Both 
sides hope the United States will send a representative to 
this meeting. The GOI will insist that the agreement consist 
of one document to be signed by the U.S., Egypt and Israel. 
The GOI hopes this can happen in May, perhaps at the World 
Economic Forum meeting in Jordan.  Bar said GOE officials 
indicated to him that President Mubarak may raise QIZs with 
President Bush during his visit to the U.S. in April.  Bar 
said that because word is already out about the tentative 
deal with Egypt, the GOI hopes to release a press statement, 
with GOE concurrence, within the next few days. 
 
2.  (C) Embassy would appreciate guidance from Washington on 
Bar's request that USG representatives attend the planned 
April 14 meeting in Athens.  If Embassy Tel Aviv and/or 
Embassy Cairo representatives attend, we will need 
instructions about their role, if any, in drawing up a draft 
agreement.  USTR may also need to make clear to the parties 
earlier rather than later in what form the U.S. would 
participate in the Israeli/Egyptian agreement.  We may also 
need press guidance once the Israel-Egyptian deal reached 
March 30 becomes public.  End Summary and Action Request. 
 
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"Permanent" Deal Reached on Israeli Content 
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3.  (C)  Bar confirmed the terms of the deal reached between 
Israel's Minister of Industry, Trade and Labor Olmert and 
Egypt's Minister of Foreign Trade Youssef Boutros Ghali 
(reftel).  He said that both sides had agreed on a 
"permanent" 11.7% Israeli minimum content level for all 
Egyptian QIZ products.  Undoubtedly, he said, Egypt would try 
to bargain the content level down at some future date.  The 
Israeli intent, however, was to keep the content level at 
11.7% for the foreseeable future.  (Note: the minimum Israeli 
content in the Jordan QIZs is 8%.) 
 
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Next Steps - A Meeting in Athens April 14; 
A Trilateral Signing in Jordan? 
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4.  (C)  Bar said Egypt was anxious to conclude an agreement 
as soon as possible.  Both sides agreed to meet in Athens, 
April 14 (Bar said this was the earliest practical date for 
the GOI in light of the Passover holidays).  Bar said the two 
sides would try to draw up a draft agreement in Athens that 
could be presented to their respective ministers and to the 
U.S.  Bar said both Egypt and Israel hope U.S. 
representatives can attend the meetings.  Officials from 
Embassy Tel Aviv and Cairo would be welcome, and a USTR 
representative would "be ideal."  Bar said U.S. participation 
was crucial because the agreement would be trilateral in 
nature - signed by the "trade ministers" of the U.S., Egypt 
and Israel.   Bar said the GOE knows that Israel will insist 
on this trilateral formulation and will not accept "parallel" 
agreements between the U.S. and Egypt and the U.S. and Israel. 
 
5.  (C)  If all the details could be worked out in April, 
continued Bar, the GOI hoped the final agreement could be 
signed in May.  One possible venue for a trilateral signing, 
he said, might be the World Economic Forum meetings in Jordan 
May 15-17.  Ministers Olmert and Boutros Ghali will be there, 
and he assumed USTR Zoellick would attend.  MOIT Deputy 
Director General Ronit Kan would try to contact USTR shortly, 
he said, to discuss a possible meeting and signing. 
 
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Multiple Zones from the Outset? 
Mubarak to Raise QIZs with President Bush? 
------------------------------------------ 
 
6.  (C)  Bar said one key unresolved issue is the number of 
QIZs that will be established.  Egypt, he said, wants to 
designate up to seven zones (consisting of already built-up 
factory areas) as QIZs from the outset.  Israel, said Bar, 
has not taken a position on the issue.  Bar understood, 
however, that USTR preferred to start with only one or two 
zones at first.  Bar said that Egyptian contacts had told him 
that President Mubarak might raise the issue of multiple 
zones during his April meeting with President Bush. 
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GOI Wants to Issue a Press Statement Soon 
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7.  (C)  Bar said the GOI had tried to keep the discussions 
with Egypt out of the press.  However, several key Israeli 
businesspersons with interests in Egypt (such as textile 
magnate Dov Lautman) were already aware of the deal on 
Israeli content.  More worrying was the fact that Israel's 
Ministry of Foreign Affairs (through its embassy in Egypt) 
had caught wind of the deal.  Bar said he had refrained from 
divulging information to MFA or the Israeli Embassy in Cairo 
because of the fear of leaks.  Bar said that since word about 
the deal was spreading, it was almost certain to be reported 
in the Israeli media soon.  Given these circumstances, 
Minister Olmert wants to issue a press statement by April 3 
(Sunday) or April 4.  Bar said Olmert would raise the issue 
with Boutros Ghali by phone. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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