FTA Implementation: First Bumps in the Road

1. (SBU) Summary: During the first 75 days of FTA
implementation Moroccan and U.S. businesses have experienced
a few difficulties. The most pressing and disturbing
implementation difficulties have been in the area of
agricultural trade, including an unfavorable rules of origin
determination for U.S. almonds, a delay in Washington
approval of a system for auctioning wheat tariff rate quotas
(TRQs), and two sanitary/phyto-sanitary (SPS) issues related
to apples and meat. Moroccan textile and garment exporters
report that U.S. customs officials at ports of entry are
unaware of Moroccan FTA provisions. Post believes a meeting
of the FTA Agricultural Committee (including the SPS
Subcommittee) and/or the Customs/Rules of Origin (ROO)
committee should be convened in the near future to address
these and other issues of mutual interest. The U.S.
intellectual property rights (IPR) industry, while thrilled
with the FTA provisions, has begun campaigning for improved
IPR enforcement. End Summary.



--------------------------


AGRICULTURE


--------------------------





2. (SBU) The most pressing and disturbing implementation
difficulties have been in the area of agricultural trade.
Three separate issues have arisen: The distribution system
for FTA wheat importation quotas has not been finalized; a
shipment of U.S. almonds failed to meet rules of origin
requirements because it was ostensibly not shipped
"directly" from the United States to Morocco; and U.S.
apple, beef, and poultry meat exporters are facing sanitary
and phyto-sanitary challenges. Post believes that these
issues alone warrant convening a meeting of the FTA's
Agricultural Committee soonest.

Wheat Quota Auction on Hold


--------------------------





3. (SBU) In April 2005, the GOM sent USTR a proposed
procedure for auctioning wheat TRQs. Moroccans officials
are still awaiting approval from Washington before holding
these auctions. If no answer is received, no importer will
have the right to import U.S. wheat under the negotiated TRQ
during the March-May 2006 timeframe. Emboffs understand
that Washington is struggling with issues of marketing year
definitions, but Agatt and Econoffs are worried that the
first 700,000 ton wheat quota will be lost without quick
resolution of this issue.

Indirect Almonds


--------------------------





4. (SBU) Two containers of Californian almonds
(approximately 40 tons) arrived in Tangier on January 3,
2006, just after the FTA came into effect. The exporter,
Campos Brothers, apparently intended to use the 50 ton
annual quota for U.S. almonds. Moroccan Customs officials
note that the almonds arrived from in-bond storage in Spain.
Bills of lading indicate shipment from Houston to Algeciras,
Spain and no onward shipment to Morocco. This, argue
Moroccan customs officials, does not fulfill the "direct
shipment" rule of origin contained in Article 5.1 of the
agreement. Furthermore, they argue, in-bond storage is not
covered by the transshipment exceptions to Direct Shipment
contained in Article 5.9. Moroccan officials note that 5.1
provisions regarding direct shipment were a U.S. demand
during the FTA negotiations. The Ambassador, EconCouns and
Agatt have repeatedly raised the issue with Moroccan Customs
officials, arguing Campos Brothers case. The Moroccan chief
of Customs told the Ambassador he would "look into" the
matter. Moroccan customs officials say a finding by U.S.
Customs that the almonds fulfill FTA ROO would satisfy them
enough to change their ruling. Congressman Devin Nunes (R-
CA), whose family farms almonds, has contacted the
Ambassador regarding this case. Emboffs believe that the
direct shipment ROO interpretation precedent will prove
important for a wide range of other U.S. agricultural
exporters. A meeting of U.S. and Moroccan customs officials
under the aegis of an FTA Committee might prove invaluable
to resolving an interpretative difference with potential
long-term and wide ranging impacts that reach far beyond
this initial shipment.

Sanitary and Phyto-Sanitary


--------------------------





5. (SBU) Two SPS issues have arisen. We believe that
either the FTA Agricultural Market Access Committee or its
SPS Subcommittee are the proper venues for resolving these
two issues. The first involves apples. Moroccan
Agricultural Ministry officials requested new certification
requirements on January 25, 2006. While USDA is working to
meet these new requirements, we fear that due to the short
shipping season for the TRQ - February 1 through May 31 -
export opportunities will be lost in the interim. The
second SPS difficulty relates to sanitary health
certification for beef and poultry. Under the FTA, the
United States is entitled to a four thousand ton TRQ for
high quality beef and a similar quota for poultry. While
the major sanitary obstacles to trade were addressed during
the FTA negotiations, other issues (such as BSE) have since
arisen. These require renewed efforts to finalize a model
health certificate to facilitate trade.



--------------------------


TEXTILES


--------------------------





6. (U) Moroccan textile and garment exporters have
reported that their U.S. importers are experiencing
difficulties with U.S. Customs at ports of entry. U.S.
officials are apparently unaware of new FTA market access
provisions. One Moroccan exporter, SOMITEX, told Econoff
that its importer had to pay tariffs on a product it thought
was duty free under the FTA. The MEPI-funded IESC Morocco
Fast Track Trade Program reported similar difficulties
experienced by its Moroccan SME customers. U.S. garment
importers (e.g. a Liz Claiborne executive) and Casablanca-
based trade lawyers have complain about the complexity of
the FTA's textile provisions. A U.S. Customs official who
is preparing instructions for dissemination to ports of
entry admitted to IESC representatives that the Morocco
FTA's textile provisions are the most complicated they have
encountered. These anecdotes reinforce accusations that
U.S. Customs may not have distributed proper instructions to
agents at ports of entry. Post would appreciate any
guidance on the status of information dissemination so that
emboffs can brief Moroccan government officials and
exporters. Encouragingly, these negative experiences are
limited to textile and garment exporters. Other Moroccan
manufactured goods exporters report no difficulties (in fact
they have been impressed by U.S. customs preparedness).

---
IPR
---



7. (SBU) While U.S. industry is largely thrilled with the
exceptionally high levels of IPR protection contained in the
FTA, representatives of U.S. companies have already begun
complaining about inadequate enforcement, especially for
pirated software, CDs and DVDs. Microsoft (as local
Business Software Alliance representative) has approached
econoffs regarding Morocco's failure to enforce adequately
laws governing software licensing. Most egregiously,
Microsoft claims (but has yet to provide a detailed
quantitative report on the breadth or magnitude of the
problem, and it refuses to "name names") that Moroccan
ministries are using unlicensed products, in explicit
contravention of FTA provisions. Trademark holders
(including Mars candies) have complained that court cases
take too long and that without injunctions, infringers
continue to operate with impunity during legal proceedings.
Emboffs note that MEPI-funded USPTO technical assistance for
patent and trademark protection, MEPI-funded CLDP training
for copyright and ISP liability, and USAID's Business New
Business Environment Program will address IPR enforcement
issues.



--------------------------


COMMENT:


--------------------------





8. Comment: Having worked hard for more than three years
within the USG and with our GOM and private sector partners
on both sides of the Atlantic not only to negotiate and
implement the accord, but to raise its profile through
persistent public diplomacy campaigns, Embassy Rabat wants
to ensure that the FTA fulfills its promise. As the GAO
found in its report on monitoring and enforcing trade
agreements (GAO 05-537), diplomatic posts and Washington
trade agencies should redouble efforts to follow-through on
our negotiated agreements. Toward that end, we strongly
recommend convening appropriate ad hoc experts meetings or
meetings of appropriate FTA committees as set out in the FTA
to address these initial difficulties and to reduce the
probability of new issues arising in the future.
BUSH