TRADE MINISTER OLMERT PROMISES COOPERATION, ACTION

C O N F I D E N T I A L SECTION 01 OF 03 TEL AVIV 001729

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E.O. 12958: DECL: 03/22/2009
TAGS: ETRD BEXP IS ECONOMY AND FINANCE LABOR AND COMMERCE ISRAEL RELATIONS
SUBJECT: TRADE MINISTER OLMERT PROMISES COOPERATION, ACTION
ON TRADE ISSUES

Classified By: Ambassador Daniel C. Kurtzer for Reasons 1.4 (B) and (D)


1. (C) Summary. Vice Prime Minister and Minister of
Industry, Trade and Labor (MOIT) Ehud Olmert told the
Ambassador March 18 that he takes U.S. complaints about trade
barriers seriously and would seek to correct problems. He
said MOIT will be the point of contact on complaints related
to government procurement and will intercede with other
ministries if necessary. Similarly, MOIT will carefully
review the GOI standards' regime, with the goal of
introducing U.S. standards whenever possible. Olmert asked
his staff to look quickly into the most immediate
standards-related issue -- the decision to build the new gas
transmission network using obscure Dutch standards. Olmert
insisted that the USG would be pleased with new
pharmaceutical data protection rules the GOI will unveil
within the next few weeks. He said the GOI hoped to be able
to tap into new FTAs the U.S. had negotiation through
"cumulation" arrangements. He complained about Egypt's
"unreasonable" posture on proposed QIZs. End summary.


2. (C) Olmert told the Ambassador that he requested the
meeting following the Ambassador's recent public remarks
about the imbalance in the bilateral trade relationship. He
took the remarks seriously, and saw it as his "moral
commitment" to the U.S. to explore ways how the two
governments could improve the ability of U.S. companies to
compete in the Israeli market. The amount of the U.S. trade
deficit with Israel is distorted, he said, by the huge amount
of diamonds Israel exports to the U.S. Nevertheless, even
without diamonds, Israel's trade surplus with the U.S. is
growing. Olmert cautioned that there were limits to what the
GOI could do to improve the balance of trade, since
individual companies, and not the government, make the great
majority of purchasing decisions. The Ambassador replied
that the Embassy had identified three areas where we believed
governmental action could help "level the playing field" for
U.S. firms: procurement, standards and IPR.

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Procurement
--------------


3. (C) The Ambassador said the GOI needed to increase the
openness and transparency of Israel's government procurement
process. He specifically noted problems U.S. firms had
encountered in bidding on contracts for the Israel Electric
Company, the Jewish Agency, and the Ministry of Defense. The
Ambassador said the common practice of awarding contracts
without an open and fair bidding process was of special
concern. American firms may have won some of these directed
contracts. Nevertheless, this approach is fundamentally
flawed. A system where the bidder offering the best prices
and the best services wins the contract would be in
everyone's interest - the GOI, Israeli consumers, and U.S.
firms. The Ambassador urged Olmert to establish a central
clearing house for all governmental and parastatal tenders,
and to designate an ombudsman to which U.S. and other firms
could turn when encountering problems with the GOI
procurement process.


4. (C) In reply, Ronit Kan, Deputy Director General of the
Ministry, cited examples of what she described as the notable
success of U.S. companies in obtaining government-related
business in Israel. The GOI continuously strives to improve
its procurement policies, she said. The Ministry of Finance,
in particular, was working on ways to make the bidding
process more open and transparent, so much so that it was
encountering strong criticism from Israeli companies that
were angered at the increased foreign competition. Kan said
that representatives of American firms, unlike European
businesspersons, had sometimes been unwilling to travel to
Israel to promote their products or services, putting them at
a competitive disadvantage. The Ambassador responded that
the U.S. was seeking a level playing field so that those U.S.
firms that had a presence here and wanted to compete could
have a fair shot at contracts.


5. (C) Minister Olmert said he doubted the creation of a
central clearinghouse or a designated ombudsman would be
possible in Israel. The United States, he said, had no such
mechanisms either. The Ambassador replied that the USG has
strict, enforceable procurement regulations that must be
abided by. Olmert said this was, by and large, the case in
Israel as well. The GOI, he continued, was willing to
address any procurement deficiencies identified by the USG.
He asked that the Embassy provide specifics on any
procurement problems that companies face, and said that Ronit
Kan would be the point of contact. Her office would
investigate all claims brought by U.S. companies. If MOIT
received an unsatisfactory answer from the involved GOI
agencies, it would insist on a change in policy.

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Standards
--------------


6. (C) The Ambassador asked that U.S. standards be given at
least an equal footing with EU and other standards. He told
Olmert that U.S. standards institutes and standards
developing organizations were ready to engage in a dialogue
with their Israeli counterparts to gain improved acceptance
of U.S. standards. The Ambassador also asked Olmert to
investigate the adoption of an obscure Dutch standard for
Israel's natural gas pipeline infrastructure. Olmert said he
was unaware of the gas standards issue, but promised the
Ambassador that he would investigate.


7. (C) Kan confirmed that Israeli law allows the adoption
of more than one standard if both standards are accepted
internationally. She said the GOI needed a better
understanding of how U.S. regulatory bodies work, and
welcomed the Ambassador's message that U.S. regulators were
seeking a dialogue. She said EU standards bodies had been
very active in Israel. Through the Barcelona Process, an EU
policy program aimed at strengthening ties between the EU and
the countries of the Mediterranean Basin, Israel had
developed a strong understanding, and hence acceptance, of EU
standards regimes. The Ambassador agreed to communicate the
GOI's willingness to discuss standards regimes to the
relevant U.S. agencies and organizations.


8. (C) Olmert, Kan and Yair Shiran, MOIT Director for
International Affairs, pushed for Mutual Recognition
Agreements (MRAs) between the United States and Israel.
Shiran said, for example, that the Israeli Ministry of Health
accepted the findings of the U.S. Food and Drug
Administration when approving drugs in Israel, but the FDA
did not accept MOH findings. He told the Ambassador that the
GOI was interested in reaching a mutual recognition agreement
with the FDA. The Ambassador said the Embassy would forward
the Israeli interest to Washington, but added that the GOI's
position would be greatly enhanced if Israel would adopt an
acceptable data protection regime (see para 9 below). The
Ambassador noted that the Embassy was expecting further
guidance from Washington in regard to MRAs with Israel.

--------------
Protection of Intellectual Property
--------------


9. (C) Minister Olmert told the Ambassador that the GOI is
convinced that Israel is living up to its WTO obligations
regarding the protection of proprietary pharmaceutical data.
Olmert said the U.S. was "exaggerating" the importance of the
issue, which in his mind primarily reflected the business
interests of U.S. pharmaceutical companies. Still, the GOI
wanted to find a solution to this problem because it wants to
make it easier to do business in Israel and because it takes
USG concerns seriously. Olmert told the Ambassador that
there will be a "dramatic change" in Israel's policy. Shiran
said that the interagency working group would deliver its
suggestions to the ministerial level probably by the end of
March. Kan added, however, that the group had yet to reach a
final recommendation on the changes that Israel should make,
and was still exploring alternative models.


10. (C) The Ambassador said the USG had long been puzzled
by the GOI's policy towards the rights that U.S. music
companies enjoy when collecting broadcast royalties in
Israel. We were disturbed by the GOI's recent submission for
the current Special 301 review. If the GOI did not really
intend to deny national treatment to U.S. music companies,
then it might consider amending its submission very quickly.
Olmert said the issue was new to him. He promised the
Ambassador that his staff would approach the Ministry of
Justice, which was responsible for the issue within the GOI,
and report its findings to the Embassy.

-------------- -
Issues of Concern to the GOI - Rules of Origin
-------------- -


11. (C) Kan told the Ambassador that the GOI was "amazed"
by the tempo with which the U.S. was concluding new free
trade agreements (FTAs). Israel was concerned that these
agreements were causing an erosion of Israel's competitive
position in the U.S. market. Kan told the Ambassador that
the GOI hoped that Israeli content would be accepted when
another U.S. FTA partner calculated the minimum content
requirement needed to enjoy duty free access to the U.S.
market. Olmert added that the GOI was particularly
interested in such treatment for textile products.


12. (C) The Ambassador told Olmert and Kan that the GOI
should bring the issue up at the planned April meeting of the
U.S.-Israel Joint Economic Committee. He added, however,
that the GOI should understand that it would need to make a
compelling case - it should not expect this to be an easy
sell in Washington. The Ambassador said the GOI might find a
more positive response if it focused on the new FTA trading
partners of the U.S. in the Middle East. As part of its
economic agenda in the Middle East, the United States was
interested in improved economic cooperation between those
countries in the region that were willing and able to sign
FTAs with the U.S. Olmert replied that Israel was interested
in a broader solution, whereas Kan added that Mexico and the
CAFTA countries were the most interesting cumulation partners
for Israel.

--------------
Egyptian QIZs
--------------


13. (C) The Ambassador said the USG takes the view that the
GOI should engage in a Qualified Industrial Zone (QIZ)
agreement with Egypt if it believes that such cooperation
would be in Israel's commercial and political interest. At
the same time, he urged the GOI to "widen its lens" and
consider the broader benefits that QIZs could bring to
Israel's relations with Egypt. Olmert replied that, on
balance, it was questionable whether QIZs with Egypt had any
real economic benefits for Israel. Many Israeli companies
were scared by the potential competition from Egyptian QIZ
companies.


14. (C) Olmert added that it was "unthinkable" that the GOI
would immediately give Egypt the same benefits -- i.e. 8%
minimum Israeli content -- that Jordan now enjoys. The
Jordanians received this low input concession only after
several years of productive, fruitful cooperation. Egypt had
also made the process difficult for Israel, he said. At
first the GOE was unwilling to talk to the GOI directly, but
sent businessmen as surrogates. "Just because Mubarak is now
in a different mood won't compel us to act and give them what
they want", he told the Ambassador. Nevertheless, Olmert
said the GOI was willing to compromise. He believed that an
agreement would eventually be signed.

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Comment
--------------


15. (C) This was a positive and constructive meeting, but
the jury is still out on the GOI's commitment to take the
sustained action needed to remove trade barriers. We are
encouraged by Olmert's pledge of cooperation on procurement
and standards issues, but recognize that improvement in these
areas is likely to require continued and persistent pressure
before real changes will become evident. One indication of
the GOI responsiveness will be the government's action in
regard to Israel's natural gas transmission system Key
tests on IPR will be the level of protection offered by
Israel's promised new data protection policy and a positive
resolution of the broadcast royalties issue. End comment.

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