US embassy cable - 05RABAT452

UNCLAS SECTION 01 OF 03 RABAT 000452 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR NEA/MAG 
DEPT PLEASE PASS TO USTR DOUG BELL 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EFIN, PREL, PGOV, KMCA, MO 
SUBJECT: AMBASSADOR'S MEETING WITH PALACE ADVISOR MOHAMMED 
KABBAJ 
 
REF: A. RABAT 365 
 
     B. RABAT 247 
     C. RABAT 253 
     D. RABAT 197 
     E. 2004 RABAT 1813 
 
1. (U) Summary:  Continuing a series of calls on Royal Palace 
Advisors, Ambassador met February 18 with Mohammed Kabbaj, 
one of King Mohammed's lead advisors on trade, finance and 
investment matters.  Kabbaj and Ambassador engaged in a 
free-flowing discussion of the GOM's economic plans and 
priorities, with a focus on the government's expectations 
under the recently-ratified U.S.-Morocco FTA.  Ambassador was 
accompanied by PolCouns and Econoff notetaker.  End Summary. 
 
---------------------- 
FTA: When Do We Begin? 
---------------------- 
 
2. (SBU) Kabbaj opened the meeting by asking for the 
Ambassador's assessment of when the FTA might come into 
effect.  Ambassador responded by congratulating GOM on 
Parliamentary passage of the FTA, and said we are now waiting 
for Morocco to pass legislation that will bring domestic law 
into compliance with its commitments under the agreement, 
citing specifically the area of IPR.  Ambassador said we are 
hoping the necessary legislative changes can be made and the 
agreement enacted by summer.  Kabbaj indicated that in 
Morocco it is "tradition" that once an agreement is adopted 
by Parliament it becomes law, and that since such 
international commitments are above domestic law, separate 
legislative action should not be necessary.  Ambassador 
agreed that Parliamentary passage of the agreement was an 
important step, but said USTR may require Morocco to pass 
separate domestic legislation that will enshrine the 
provisions in law. 
 
3. (U) Moving on to anticipated outcomes once the agreement 
is in force, Kabbaj said both governments need to work to 
ensure that firms in a wide range of sectors have the tools 
in place to exploit the opportunities presented by the FTA. 
He said many in the private sector are "afraid" of the FTA 
simply because they do not know how to do business in the 
U.S. market.  The Moroccan business community is accustomed 
to "looking north" toward Europe, he said, and now needs to 
"learn to look west."  Kabbaj suggested that trade shows, 
investment promotion visits and even cultural activities are 
important to strengthen trade and investment links between 
the two countries.  He singled out the arrival of investment 
delegations from the United States as the "most important." 
 
4. (SBU) Ambassador noted the success of the FTA Caravan in 
September of 2004 (ref E), and said we need to inform, but 
avoid raising unrealistic expectations.  He said he has 
agreed to participate in a program in April that will take 
Moroccan business leaders to four cities in the United States 
to explore trade and investment opportunities.  Ambassador 
noted that education and technical assistance are important, 
but that large-scale investment and job creation will come 
from established businesses expanding their operations and 
choosing Morocco as a destination for new investments. 
Ambassador also highlighted the importance of leveraging the 
U.S.-Morocco FTA by tying it to Morocco's privileged access 
to the European market.  He said that by drawing U.S. 
investors' attention to Morocco's association agreement with 
Europe, the country will attract interest from an investor 
who might build a factory in Morocco not only to supply the 
Moroccan market, but as a point of entry into the richer and 
much larger market to the north. 
 
5. (SBU) Ambassador opined that bringing investment trips to 
Morocco may not be the most effective means to generate trade 
and investment links, pointing out that large, 
well-established investors are less likely to participate 
than smaller companies that are often not ready to commit to 
a sizable investment in the short term.  Ambassador cited the 
example of U.S. textile manufacturer Fruit of the Loom, which 
evaluated 14 different countries as potential sites for 
consolidation and expansion of its operations before choosing 
Morocco.  He said the company will invest almost $100 million 
here, and that this decision was a pure business decision 
based on competitive factors like location, energy costs, 
transport and workforce.  Kabbaj agreed that the Fruit of the 
Loom example was a powerful one, and encouraged Ambassador to 
spread the word of such successes to other potential 
investors.  Saying people in Morocco have "heard enough 
speeches," Kabbaj said these kinds of success stories are 
irrefutable examples of how the FTA can facilitate economic 
growth, and will resonate with Moroccans as well as with 
outside investors. 
 
-------------------------------------- 
Prioritizing Investment in Agriculture 
-------------------------------------- 
 
6. (U) Kabbaj said a top GOM priority is to generate 
investment in the agricultural sector, mentioning olive oil, 
dates and cotton as areas in which he considers Morocco to be 
most competitive.  Recounting trips he took to Arizona and 
Oklahoma some years ago, Kabbaj said he met people interested 
in investing in land for agricultural production, but said 
these potential investors were stymied due to the difficulty 
in finding plots of adequate size.  He said the government's 
new land lease program opens new opportunities for investment 
in the agricultural sector.  Kabbaj said he hopes foreign 
investors will bring much-needed technology and capital 
investments to bring new efficiency to the sector.  Kabbaj 
also noted that while the GOM is eager to reform the 
agricultural sector, it will also endeavor to protect 
agriculture in the short term to give producers a time to 
adapt and increase their efficiency.  Ambassador noted that 
California, the United States' largest agricultural producing 
state, went through a similar process many years ago, with a 
migration from small family farms to the larger, more 
efficient producers of today. 
 
7. (SBU) Kabbaj also wants to push the sector toward higher 
value-added production, saying Morocco simply cannot compete 
with the United States or Europe in basic crops like wheat. 
He suggested a move into more competitive niche sectors, such 
as certain fruits and olive oil extraction.  He suggested 
Morocco might have a comparative advantage over California in 
sales of certain highly-perishable agricultural products to 
the Eastern part of the United States due to the relatively 
shorter shipping distance between Morocco and the East Coast. 
(Comment: Kabbaj's musings may be overly optimistic; it is 
unclear whether sea transportation of Moroccan agriculture 
could compete with truck and rail shipment of ag products.) 
 
------------------------------- 
FTA Is More Than Just Economics 
------------------------------- 
 
8. (SBU) Kabbaj noted that the importance of the FTA's 
success for U.S. policy in the region goes beyond just 
increasing commercial ties between the two countries. 
Referring to the link between the U.S.-Morocco FTA and the 
President's plan for a Middle East Free Trade Area, Kabbaj 
said that if the Morocco FTA does not succeed, other 
countries in the region will doubt the utility of future 
trade agreements.  In this way, he said, Morocco can serve as 
a "positive example" for other countries in the region. 
 
------------------------------ 
MCA: Consultations are the Key 
------------------------------ 
 
9. (U) Ambassador then turned the discussion to Morocco's 
recent selection for eligibility for Millennium Challenge 
Account (MCA) funding.  Ambassador explained that Morocco was 
the only new country selected this year for MCA eligibility, 
that the priorities selected for funding will be those chosen 
by the Government of Morocco, and that the MCA compact is a 
contract directly between the GOM and the USG.  Ambassador 
encouraged the GOM to work toward establishing an MCA "team," 
and said the Embassy looks forward to working with that team 
to help Morocco develop a compact.  Ambassador emphasized 
that an exhaustive consultative process is the key to 
developing a successful compact, and urged the GOM to engage 
in such a process.  Kabbaj expressed his pleasure at the 
GOM's selection, and agreed on the need for a thorough 
consultative process. 
 
10. (SBU) Comment:  While obviously very fluent in the 
language of business and trade, Kabbaj seemed only vaguely 
familiar with status of the FTA and the question of when and 
how it will go into effect.  Neither did he seem 
exceptionally well-informed on the next steps for Morocco's 
engagement on MCA. 
------------------------ 
Biographical Information 
------------------------ 
 
11. (U) Mohammed Kabbaj has served in the government for more 
than two decades.  He served as Minister of Public Works, and 
of Vocational and Professional Training in the 1980's and 
early 90's, and as Minister of Finance and Foreign Investment 
1996-1997.  Kabbaj has been a member of Parliament since 
1993, and is a member of the political directorate of the 
Constitutional Union Party.  He speaks English fluently. 
 
12. (SBU) Although conversation in this meeting focused 
almost exclusively on Morocco's priorities for future 
development of trade and investment links with the U.S. under 
the FTA, Kabbaj also occasionally assumes an advisory role in 
security matters.  He has played a role in the Western 
Sahara/Algeria issue, sometimes attending meetings between 
Algerian president Bouteflika and King Mohammed VI. 
RILEY