COMMERCE U/S JUSTER RAISES TRADE ISSUES AND

UNCLAS SECTION 01 OF 04 TEL AVIV 001683

SIPDIS

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E.O. 12958: N/A
TAGS: ETRD BEXP KIPR KWBG IS LABOR AND COMMERCE ECONOMY AND FINANCE ISRAEL RELATIONS
SUBJECT: COMMERCE U/S JUSTER RAISES TRADE ISSUES AND
LOOKS AT EXPORT LICENSING REGIME

This message is sensitive but unclassified. Please
handle accordingly.


1. (SBU) SUMMARY. In a visit to Israel March 2-4, Under
Secretary of Commerce Kenneth I. Juster, head of the

SIPDIS
Bureau of Industry and Security (BIS),met with high-
ranking Israeli officials, as well as with both Israeli
and American leaders from the private and public
sectors in Israel's hi-tech and defense industries.
U/S Juster discussed U.S.-Israel cooperation in the
area of high-technology trade, held meetings with BIS's
Israeli counterparts in the MoD, and met with leading
private and public sector players in Israel's
sophisticated hi-tech and defense sectors. Throughout
the meetings with GOI officials, Juster raised U.S.
government concerns about the worsening U.S. trade
deficit with Israel. The U/S urged Israeli government
officials to reexamine specific policies and practices
that restrict the ability of U.S. companies to compete
in Israel and also adversely affect the interests of
Israeli consumers. In particular, Juster discussed
certain Israeli procurement practices that fail to
promote transparent and fair competition, the lack of
protection of certain intellectual property rights, and
the need for enacting technical standards and
regulations that do not discourage U.S. companies from
competing for business in Israel. END SUMMARY.

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Meeting with Vice Prime Minister Olmert
--------------


2. (SBU) Under Secretary Juster told Vice PM and
Minister of Industry and Trade Olmert that he was
"alarmed" by the rising U.S. trade deficit in Israel,
which was almost $6 billion in 2003, especially at a
time when the EU has a very large trade surplus with
Israel. Israel should take steps to remove the
obstacles to U.S. exports, such as inadequate
protection of intellectual property -- especially
protection of proprietary pharmaceutical data -- non-
transparent government procurement procedures, and the
use of technical standards as a non-tariff barrier to
trade.


3. (SBU) Olmert responded that the Ambassador has
pushed these issues very hard with the Government of
Israel. It is nonetheless difficult, he said, to
change trade patterns easily, because Israel is an open
private economy and purchasers can buy products from
wherever they like. He said, however, that he is open
to ideas about how to reduce the U.S. trade deficit and
asserted that there has been progress on trade issues.
All of the obstacles to signing a new bilateral
agricultural agreement have been removed and, according
to Olmert, the agreement should be finalized soon.


4. (SBU) Turning to IPR, he noted that Israel has
formed an interministerial committee, comprised of
MOIT, Health and Justice, to look closely at the data
protection issue. The committee will make
recommendations by the end of the month and the USG
should expect "good news." Olmert did not provide
specifics, but said the GOI will "move in the direction
of your expectations." "Speaking frankly," Olmert
said, "I don't think your complaints are right."
Nevertheless, the GOI has decided to reconsider its
previous positions on the matter, in order to make it
easier for U.S. firms to operate in Israel.


5. (SBU) Turning to procurement and standards issues,
Olmert said he wants to arrange a meeting with the
Ambassador to review specific ideas the U.S. may have.
Olmert said that the GOI desires a less "lopsided" and
more collaborative trade relationship. (A meeting
between Olmert and the Ambassador has been set up for
mid- March.)


6. (SBU) Olmert noted that Israel has a few trade
issues of concern as well. These include the difficulty
that Israeli firms have had getting access to U.S.
government homeland security-related procurement. U/S
Juster said he would look into it and made the point
that openness and transparency in the procurement
process on both sides would be beneficial. Olmert also
noted that the U.S. has negotiated, or is in the
process of negotiating, a number of new free trade
agreements. Israel is interested, he said, in tying
into those agreements through favorable treatment under
rules of origin. He asked U/S Juster to convey these
views to USTR Zoellick. Finally, Olmert raised the
problem that the Israeli firm Checkpoint has been
having in gaining USG approval for the purchase of a
U.S. company. Olmert said that the deal has been
signed off on by all USG agencies, except the
Department of Homeland Security. U/S Juster replied
that the purchase was being considered by the USG and
that an interagency group would make the decision. He
promised to convey Olmert's views to Washington. Olmert
said that he planned to call Secretary Ridge about the
issue.

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The Arab Boycott and the WTO
--------------


7. (SBU) Olmert noted that several countries in the
region, most notably Saudi Arabia, had expressed
interest in joining the WTO. He stressed that it was
important that each candidate for WTO membership
commit, in writing, not to support any boycott against
Israel, as a prerequisite for joining the organization.
U/S Juster, noting that he is responsible for Arab
boycott issues at the Department of Commerce, said the
USG agreed that endorsement of a boycott was
inconsistent with WTO membership.

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Olmert Says the Jawwal Problem Will Be Solved
--------------


8. (SBU): U/S Juster noted that the USG remains
concerned that equipment bound for the Palestinian
telecommunications company Jawwal continues to be held
up at Israeli ports. Olmert said that he is well aware
of the issue, and has talked to Jawwal Chairman Zahi
Khouri about the problem at length. Olmert promised
that the goods would be released soon. (Note: key
components Jawwal needs to upgrade its infrastructure
have been held up for months despite GOI assurances to
the embassy that the parts would be released.)

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Breakthrough on Gas Pipeline Standards Issue?
--------------


9. (SBU) At a working luncheon hosted March 2 by the
Ministry of National Infrastructure, U/S Juster noted
the fact that MNI's decision to build Israel's new
natural gas transmission pipeline under a little-known
Dutch standard had disadvantaged U.S. firms in bids for
up to $500 million in contracts. This was a prime
example, he said, of how technical standards act as a
serious non-tariff barrier. MNI Director General Eli
Ronen and other MNI officials initially stated that it
was far too late to change the standard now. Later
during the lunch, however, Ronen said that it "might be
possible" to get the selection of the standard
reexamined. Ronen's assistant later told Emboffs that
many officials in MNI had come to the conclusion that
using the Dutch standard was a mistake and hoped the
USG would petition PM Sharon on the issue. He noted,
however, that there remained many vested interests
supporting the Dutch standard.

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Israeli MOD on the Israeli Export Control Regime
--------------


10. (SBU) On March 3, Ministry of Defense (MOD)
officials, led by Director General Amos Yaron, gave U/S
Juster a detailed, two-hour presentation about the MOD
role in defense export controls. Ehud Ben-Aharon, head
of the MOD defense export control office, reviewed the
legislative basis for MoD's authority to regulate the
export of defense articles and described its current
scope of control and overall GOI defense export control
policy. He provided a step-by-step account of the
process for issuing to would-be exporters the two key
authorizing documents: a negotiation permit, which must
ultimately be signed by the Director General, and the
export license, signed by the Director of SIBAT, the
MOD Foreign Defense Assistance and Defense Export
Division. Ben-Aharon drew special attention to the
requirement for exporters of U.S.-origin components to
present their U.S. re-export licenses. Deputy Director
Meir Shalit of SIBAT followed with a presentation on
GOI controls on the export of cryptographic technology.
While MOIT generally issues export licenses for dual-
use technology, MOD has authority over the export of
dual-use cryptographic technology. Shalit noted that
the GOI controls the export of about 1,800
cryptographic products and issues more than 100 export
licenses a year in the sector.
--------------
AmCham Members Share Views
--------------


11. (SBU) At a breakfast meeting on March 4 with
AmCham officials and representatives from Intel,
Lockheed Martin, Samedan, IBM, and National
Semiconductor, U/S Juster repeated USG concerns about
the trade deficit, technical standards, and certain GOI
tendering practices. The representatives shared their
views about doing business in Israel, which were quite
positive in general, and noted that U.S. firms already
operating in the country tend not to be affected as
much by the problems with tenders and standards as
those firms seeking to enter the market. The Lockheed
representative pointed to $500-600 million of business
in Israel over 10 years, almost all through joint
ventures with Israeli companies and resulting in
exports to other countries. One company representative
raised the issue of linking USG financial assistance to
Israel to progress on Israeli trade practices of
concern. The IBM rep proudly noted his firm's presence
in Israel for 54 years. (Note: IBM's first research
facility to be located outside North America was in
Israel.) The National Semiconductor representative
asked the U/S to tell "the home office" it is safe to
come to Israel. Miron-Wapner of the USDOC-supported
United States - Israel Science and Technology
Commission pointed to the strength of life-science
industries in Israel and asked how such firms could
help promote the USG's message. The Senior Commercial
Officer explained the objectives of the AmCham's Forum
of U.S. Companies in Israel, which the Embassy actively
supports, and its ad-hoc committees on IPR, Standards
and Regulations, Public Procurement, and Taxation/Work
Permits. AmCham President Zalman Shoval concluded the
meeting by suggesting that the Chamber might organize
"reverse trade missions" to the United States in order
to highlight large upcoming infrastructure projects in
Israel.

--------------
PM Bureau Chief: Putting our Money where our Hearts
Are
--------------


12. (SBU) In a March 4 meeting with Chief of the Prime
Minister's Bureau Dov Weissglas, the U/S again conveyed
USG concerns about Israeli trade practices that
discourage U.S. companies from competing for business
in Israel. In response, Weissglas stated that a
"ministerial committee has been formed to examine
across the board the source of why U.S. firms don't get
a fair deal" and promised that it is the intention of
the government to "react with our wallets the same way
we do with our hearts" toward the United States. On
IPR, Weisglass explained the basis of Israeli patent
law in the British tradition, but finally indicated
that "out of intellectual curiosity, [he] would see if
there is some way to amend the law."

-------------- --------------
Juster Conveys Concerns to MFA Officials
-------------- --------------


13. (SBU) U/S Juster also broached bilateral trade
issues in his March 4 meeting with Yossi Gal, MFA
Deputy Director General for Economic Affairs, and Yoram
Ben-Ze'ev, MFA Deputy Director General for North
America. The existence of a sizable U.S. trade deficit
with Israel at the same time as the EU enjoyed a large
surplus was an anomaly, Juster said. Israel should
address U.S. trade concerns, he said, since it is not
in either country's interest that this is an issue in
our bilateral relations. The USG is not asking that
Israel favor one country over another; rather, the USG
and U.S. companies are only expecting a level playing
field.

14. (SBU) Juster recounted his visits to U.S. hi-tech
companies active in Israel and cited hi-tech as a
successful example of U.S./Israeli cooperation.
Additional opportunities exist in the biotech and life
science fields, he said, adding that U.S.
pharmaceutical firms are interested in increasing their
engagement in Israel. However, the country's lack of
protection for proprietary test data remains a serious
problem in the bilateral trade relationship, he said,
and he told Gal and Ben-Ze'ev that the GOI must now
finally address the problem.

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Economic Consequences of Security Measures
--------------


15. (SBU) Responding to a question by Gal, Juster
confirmed that he had met with PA officials and
Palestinian business people. He said he delivered a
strong message to PA Minister Maher al-Masri that the
PA must finally address security issues. Al-Masri
replied that he understood that the PA must act.
Juster added that Al-Masri also addressed the economic
difficulties created by Israeli security measures.
Juster also recounted his visit to the Palestinian
telecommunications firm Jawwal. Jawwal appears to be a
good corporate business model, but IDF security
measures had caused Jawwal economic problems, he said.
He told the GOI officials that they should consider the
economic side effects of any security measures.

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


16. (SBU) Ben-Ze'ev addressed the Greater Middle East
Initiative. In the GOI's eyes, the breadth of the
initiative makes it a task for the entire coming
generation, he told Juster. Israel is concerned
whether the USG will have the staying power to stay
focused on implementing the initiative, particularly if
there should be a change in the U.S. administration.
In order for the initiative to gain acceptance in the
broader Arab world, Ben-Ze'ev said, the USG should
ensure that it does not appear to be imposed from the
outside. In addition, Ben-Zeev cautioned against
linking progress on implementation of the initiative to
progress in solving the Israeli/Palestinian conflict.
The conflict has nothing to do with "illiteracy in
Yemen," Ben-Ze'ev said. Juster said that the USG is
now gathering comments on the initiative, and is aware
of such concerns. However, action is needed, since the
status quo is unacceptable. There should be progress
on all aspects of the initiative simultaneously, he
told his GOI interlocutors.

Undersecretary Juster has cleared this cable.
Kurtzer