U/S LARSON DISCUSSES "GREATER MIDDLE EAST," AN

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 001335

SIPDIS

FOR E, NEA/IPA AND EB/IFD/OMA
PLEASE PASS USTR FOR SAUMS

E.O. 12958: DECL: 03/04/2009
TAGS: ECON EFIN PREL EG IS GOI EXTERNAL ECONOMY AND FINANCE
SUBJECT: U/S LARSON DISCUSSES "GREATER MIDDLE EAST," AN
ISRAEL-EGYPT QIZ, AND OECD EXPANSION WITH ISRAEL'S MINISTRY
OF FOREIGN AFFAIRS


Classified By: Deputy Chief of Mission Richard LeBaron for Reasons 1.4
(B) and (D)


1. (C) Summary. Under Secretary Larson reviewed the
President's "Greater Middle East" vision with Ministry of
Foreign Affairs Director General Yoav Biran February 23,
noting the initiative's efforts at promoting democracy,
expanding education, and increasing economic cooperation.
Larson suggested to Biran that Israel and Egypt should work
to "strike while the iron is hot" and attempt to reach a deal
on prospective QIZs within the next few weeks. The
opportunity, he cautioned, might slip away. Biran said the
GOI would send representatives to Egypt in early March to try
to reach a deal. Larson also discussed the latest state of
play regarding OECD expansion. He said the U.S. believed the
OECD needed to reform before it could expand, but advised the
GOI to "be ready" in case momentum builds for expansion. End
summary.

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Greater Middle East
--------------


2. (C) Under Secretary Larson reviewed the main components
of the "Greater Middle East" vision, including promoting
democracy and good governance, expanding educational
opportunities and expanding economic opportunities. Larson
highlighted the economic aspects of the GME vision, noting
the initiative's focus on trade and on financial reform. He
said the USG's recent success with Mexico in allowing more
access for U.S. programs (including the Peace Corps and
OPIC),might serve as a model for how to fight poverty and
increase business activity in the Middle East. Larson noted
that a Canadian initiative to involve the private sector in
the fight against poverty worldwide was very promising. He
said the USG wanted to once again explore the concept of a
regional development bank. Biran said that the Europeans
seemed quite interested in participating in the development
of the GME vision and were already engaged on financial and
trade initiatives through the Barcelona process. He stressed
that Israel was also keen to play a part in the GME
initiative.

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Regional Trade and an Israel-Egypt QIZ
--------------


3. (C) In response to a question from Biran, U/S Larson
touched on trade initiatives in the region, such as Saudi
Arabia's interest in joining the WTO, and USG progress in
negotiating free trade agreements with Morocco and Bahrain.
A functioning Israel-Egypt QIZ, he continued, would also
promote regional cooperation. He said, after delays of many
years, the Government of Egypt had finally come around, and
was anxious to reach a deal. Larson said the terms of the
QIZ agreement were up to the two parties, but advised the GOI
to "strike while the iron is hot" and try hard to reach a
deal now. Larson said he would offer the same advice to the
GOE during his visit to Cairo. Biran replied that Israel
wanted to reach an agreement, but it needed to make economic
sense. The Egyptians, he said, were fixated on receiving the
same terms (8% Israeli content) as Jordan. That, he
insisted, was not reasonable, since the 8% content provision
only went into effect years after the original Israel-Jordan
QIZ agreement was signed. Likewise, Biran continued, the
initial Israeli content requirement in an Israel-Egypt
agreement should be over 8%, but could possibly be reduced
later. In addition, the GOI wanted a "trilateral agreement"
with Egypt and the U.S., not a mechanism where Egypt and
Israel have "parallel agreements" with the U.S.

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OECD Enlargement
--------------


4. (C) U/S Larson reviewed the status of OECD enlargement,
arguing that the OECD needed to undergo reform before
effective expansion could take place. He said that the U.S.
supported Israel's entry into the OECD, but enlargement was
unlikely to take place this year. Nevertheless, Israel needs
to be ready, in case momentum on enlargement builds more
quickly than expected. Israel is doing the right things to
get ready, he noted, such as joining in the activities of as
many committees as possible.

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Iran and the WTO
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5. (C) Biran concluded the meeting by reiterating Israel's
opposition to Iran's bid to join the WTO. He said that Iran
must be held to all WTO criteria, including a commitment not
to engage in an economic boycott against Israel.


6. (U) This message was cleared by Under Secretary Larson.

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Attendees
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USG:
Alan Larson, Under Secretary of State for Economic, Business
and Agricultural Affairs
Dayna Cade, Special Assistant to Alan Larson
Tom Engle, Deputy Director, EB Office of Monetary Affairs
David Greene, NEA Office of Israel and Palestinian Affairs
Theodore Mann, Economic Counselor (Notetaker)

GOI:
Yoav Biran, Director General, Ministry of Foreign Affairs
Yoram Ben-Zeev, Deputy Director General for North America, MFA
Yosef Gal, Deputy Director General for Economic Affairs
Roni Yaar, Deputy Director General for International
Organizations
Ilan Baruch, Head, Middle Eastern Economic Affairs




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