AMBASSADOR'S MEETING WITH PALACE ADVISOR MOHAMMED

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.

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FTA: When Do We Begin?
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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.

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Prioritizing Investment in Agriculture
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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.)

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FTA Is More Than Just Economics
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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.

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MCA: Consultations are the Key
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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.
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Biographical Information
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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