2006 NATIONAL TRADE ESTIMATE REPORT FOR ARAB

UNCLAS SECTION 01 OF 02 CAIRO 009386

SIPDIS

STATE FOR NEA/ELA and EB/MTA
USTR FOR BLUE AND SAUMS

E.O. 12958: N/A
TAGS: ETRD ECON EG USTR
SUBJECT: 2006 NATIONAL TRADE ESTIMATE REPORT FOR ARAB
LEAGUE

REF: STATE 193384


1. The impact of the Arab League boycott of Israel on U.S.
trade and investment the Middle East and North Africa varies
from country to country. While it remains a serious barrier
for U.S. firms attempting to export to some countries in the
region from Israel, the boycott has virtually no effect on
U.S. trade and investment in many other countries in the
region. This is particularly true for the many countries
that have chosen not to enforce the secondary aspect of the
boycott that discriminates against foreign firms doing
business with Israel. Arab League members include the
Palestinian Authority and the following states: Algeria,
Comoros, Djibouti, Egypt, Iraq, Jordan, Lebanon, Libya,
Mauritania, Morocco, Somalia, Sudan, Syria, Tunisia, Yemen,
and the Gulf Cooperation Council (GCC) countries (Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab
Emirates).


2. The United States continues to oppose the boycott, and
U.S. government officials have urged Arab League members to
end its enforcement. Toward that goal, U.S. embassies and
government officials raise the boycott with host country
officials, noting the persistence of illegal boycott
requests and the impact on both U.S. firms and on the
countries' ability to expand trade and investment. Under
U.S. antiboycott legislation enacted in 1978, U.S. firms are
prohibited from responding to any request for information
that is designed to determine compliance with the boycott,
and are required to report receipt of any such request to
the U.S. Department of Commerce's Office of Antiboycott
Compliance (OAC).


3. The primary aspect of the boycott prohibits the
importation of Israeli-origin goods and services into
boycotting countries. This conflicts with the obligation of
Arab League member states that are also members of the World
Trade Organization to treat Israeli imports on a Most
Favored Nation (MFN) basis. The secondary and tertiary
aspects of the boycott discriminate against U.S. and other
foreign firms that wish to do business with both Israel and
boycotting countries. These constrain U.S. exports to the
region. The secondary aspect of the boycott prohibits
individuals -- and private and public sector firms and
organizations -- in Arab League countries from engaging in
business with U.S. and other foreign firms that contribute
to Israel's military or economic development. Such firms
are placed on a blacklist maintained by the Damascus-based
Central Boycott Office (CBO),a specialized bureau of the
Arab League. The tertiary aspect of the boycott prohibits
business dealings with U.S. and other firms that do business
with blacklisted companies.


4. While the legal structure of the boycott in the Arab
League remains unchanged, its enforcement varies widely from
country to country. Some member governments of the Arab
League have consistently maintained that only the Arab
League as a whole can revoke the boycott. Other member
governments support the view that adherence to the boycott
is a matter of national discretion, and a number of states
have taken steps to dismantle some aspects of it.


5. Enforcement of the boycott remains the responsibility of
individual member states and enforcement efforts vary widely
from country to country. Egypt has not enforced any aspect
of the boycott since 1980, pursuant to its peace treaty with
Israel, although U.S. firms occasionally find some
government agencies using outdated forms containing boycott
language. Jordan ended its enforcement of the boycott with
the signing of its peace treaty with Israel in 1994.
Algeria, Morocco, Tunisia, and the Palestinian Authority do
not enforce the boycott.


6. In September 1994, the GCC countries announced an end to
the secondary and tertiary aspects of the Arab League
boycott of Israel, eliminating a significant trade barrier
to U.S. firms. In December 1996, the GCC countries
recognized the total dismantling of the boycott as a
necessary step to advance peace and promote regional
cooperation in the Middle East and North Africa. Although
all GCC states are complying with these stated plans, some
commercial documentation continues to contain boycott
language. U.S. companies are required to notify the U.S.
Department of Commerce's Office of Antiboycott Compliance
when they receive such documentation.


7. Bahrain does not have any restrictions on trade with
U.S. companies that have relations with Israeli companies.
Outdated tender documents in Bahrain occasionally refer to
the secondary and tertiary aspects of the boycott, but such
instances are usually quickly remedied. Israeli products
are occasionally found in the Bahraini market. Kuwait no
longer applies a secondary boycott of firms doing business
with Israel, and has taken steps to eliminate all direct
references to the boycott of Israel in its commercial
documents. Kuwait still applies a primary boycott of goods
and services produced in Israel.


8. In January 1996, Oman and Israel signed an agreement to
open trade missions in each country. However, in October
2000, following the outbreak of the second Intifada, Oman
and Israel suspended these missions. Omani customs formerly
processed Israeli-origin shipments entering with Israeli
customs documentation. However, Omani firms have recently
reportedly avoided marketing any identifiably Israeli
consumer products. Israeli immigration stamps in third
country passports are not an issue. Telecommunications
links and mail flow normally between the two countries. In
April 1996, Qatar and Israel agreed to exchange trade
representation offices. The Israeli trade office opened in
May 1996 and remains open. Qatar does not practice the Arab
Boycott, but some government tender documents and laws still
include outdated boycott language.


9. Saudi Arabia enforces only the primary level of the Arab
League boycott on Israeli products. If a foreign company is
found to have imported an Israeli-made product, or a product
with some Israeli content, the Saudis will ban that company
from exporting to the Kingdom. Usual practice has been that
the Saudi government will remove its ban after the company
agrees to stop shipping Israeli products. In 2003,
according to press reports, Saudi Arabia banned three
American companies for violating the primary boycott. Saudi
Arabia acceded to the WTO in December 2005, and is now
obligated to accord all imports, from Israel or other WTO
member states, MFN treatment. Further Saudi enforcement of
the boycott would thus violate the terms of the WTO.


10. U.S. firms have faced boycott requests in the United
Arab Emirates as a result of bureaucratic and administrative
inefficiencies, rather than efforts to circumvent UAE
government policy not to enforce the secondary and tertiary
aspects of the boycott. The UAE is taking steps to
eliminate these prohibited boycott requests.


11. A U.S. soft drink manufacturer operating in Iraq is
reportedly encountering problems with the Iraqi Interim
Government due to the boycott.

JONES