US embassy cable - 04MAPUTO998

UNCLAS SECTION 01 OF 02 MAPUTO 000998 
 
SIPDIS 
SENSITIVE 
STATE PASS TO THE MILLENNIUM CHALLENGE ACCOUNT 
USTR FOR AMB SHINER AND PCOLEMAN 
AF/S FOR KDAVISON 
USDOC/ITA FOR AHILLIGAS 
E.O. 12958: N/A 
TAGS: ETRD, EAID, PREL, MZ, AGOA, MCC, TIFA 
SUBJECT: MOZAMBIQUE CAUTIOUSLY APPROACHES THE PROSPECT OF A 
FTA 
 
1. (SBU) Summary. Ambassador met with Minister of Industry 
and Commerce Carlos Morgado on July 22 to follow-up on 
discussions held between Morgado and USTR officials in 
Washington in early July on the prospect for a US-Mozambique 
FTA, as well as to discuss the status of Mozambique's 
participation in the MCA and how Mozambique can better take 
advantage of AGOA. Ambassador was accompanied by USAID 
Enabling Environment Team Leader Tim Born and Econ/pol 
officer Elizabeth Jaffee (notetaker); Minister Morgado was 
accompanied by four Ministry officials, including the 
Director for International Affairs. While obviously 
welcoming the offer, Morgado was cautious and non-committal 
regarding the FTA. The key concern from the stand-point of 
the Mozambican government (GRM) is the lack of technical 
capacity. This problem is so acute that technical assistance 
would be necessary to assist the GRM formulate a position on 
whether to even move forward with a FTA. The Ambassador 
outlined both the process for negotiations and potential 
benefits from a FTA. A useful first step would be the 
National Assembly's ratification of the Bilateral Investment 
Treaty (BIT), which has been awaiting ratification by 
Mozambique's National Assembly for over four years. Morgado 
is drafting a letter for USTR which will highlight the GRM's 
concern over its limited capacity to negotiate and request 
technical assistance. End Summary 
 
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FTA 
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2. (SBU) The Ambassador opened the meeting with Morgado by 
describing the USG's broader interest in negotiating a FTA 
with a sub-Saharan African country and our particular focus 
on Mozambique as a key reformer in the region. A 
US-Mozambican FTA was described as an opportunity to deepen 
our trade relationship, broaden reforms within Mozambique, 
and put a "seal of approval" on Mozambique as a site for 
investment, including third-country investment. It was noted 
that this is a collaborative and mutually beneficial process 
and that capacity building would be "built-in" to any 
negotiations. However, it was stressed that Mozambique had to 
make its own decision based on the costs and benefits of a 
FTA. The Ambassador noted the various stages of FTA 
negotiations, highlighting the role of both a BIT and TIFA. 
The fact that Mozambique's National Assembly has yet to 
ratify the BIT, despite the US Senate's ratification in 2000, 
was raised as a concern. Mozambique was encouraged to ratify 
the BIT as soon as possible. 
 
3. (SBU) Morgado stated that he made clear during his 
meeting with USTR that Mozambique did not yet have a formal 
position on pursuing FTA negotiations. Mozambique's limited 
trade capacity was cited as the principal constraint. It is 
only within the past few years that Ministry of Industry and 
Commerce (MIC) personnel have begun to obtain the skills 
necessary for active participation in regional or 
multilateral trade negotiations. US-Mozambique FTA 
negotiations would further strain limited capacity, 
particularly as Mozambique is already engaged in on-going 
negotiations with Europe and SADC. Morgado described the 
US-SACU FTA negotiations as potentially negatively impacting 
prospects for regional integration (specifically, SADC), by 
selected countries negotiating within an existing trade 
block. Turning to next steps, Morgado noted that he will be 
sending a letter to Ambassador Shiner that will highlight 
Mozambique's limited capacity and request technical 
assistance from the USG. The need for "PR" within the GRM on 
pursuing potential FTA negotiations was also discussed. 
Regarding the BIT, Morgado noted that as a treaty the BIT 
must be ratified by the National Assembly, which is 
notoriously slow and has other legislative priorities. He 
further noted that the GRM had been advised by Washington 
that a BIT must be approved by the National Assembly, not by 
executive decree, which he said could be done by the end of 
the month. Initiation of FTA negotiations could provide the 
political impetus for the National Assembly to ratify the 
BIT. Post would appreciate clarification on whether the USG 
requires National Assembly ratification of a BIT. 
 
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AGOA/MCC 
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4. (SBU) When questioned as to why Mozambique had not taken 
greater advantage of AGOA, Morgado cited two key factors: 1) 
inadequate resources/technical capacity for promotion 
activities and 2) supply side constraints. He described the 
GRM's strategy under AGOA as focused on several key sectors. 
In particular, Morgado highlighted the strong potential for 
increased exports of value-added aluminum products such as 
coils and axles. (Note: Morgado has previously expressed his 
interest in taking advantage of Mozal, a huge aluminum 
smelter located outside of Maputo that accounts for a 
significant portion of Mozambique's export earnings. End 
Note) Another potential area for increased exports is 
processed foods (specifically, sugar-based products such as 
jams). Morgado down-played the potential for shrimp, citing 
difficulties for local exporters to meet USG health and SPS 
requirements, as well as already established links to Europe 
and capped supply. The link between potential MCC projects 
and addressing supply side constraints was noted, with the 
Ambassador stressing the importance of the GRM communicating 
directly and regularly with MCC officials. Morgado stated 
that Mozambique had agreed on a joint principal for MCC and 
would submit a proposal by the end of August. 
 
5. (SBU) Comment: There is no question that a FTA would be a 
significant boost to Mozambique. However, post shares 
Morgado's concerns about Mozambique's limited capacity to 
negotiate. Through USAID, the USG is already providing 
significant technical assistance to MIC, which has been 
critical in developing national capacity. Much more extensive 
assistance will be required for any actual FTA negotiations. 
Moreover, while Mozambique is rightly considered a committed 
"reformer" and a model for other African countries, 
businesses face considerable constraints. An ineffective 
judiciary, inflexible labor laws, and extensive red-tape 
continue to inhibit trade and investment. In the near-term, a 
TIFA could provide an excellent mechanism to begin 
discussions on addressing these issues. In the medium to 
long-term, a FTA could provide both the political and 
economic impetus for the GRM to removing these constraints. 
We look forward to USTR's response to Morgado's letter. End 
Comment 
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