NAZIF DISCUSSES D&G FUNDING, REFORM IN EGYPT

1. (C) Summary: Ambassador made an introductor call on
Prime Minister Nazif on April 29, accompanied by econ
counselor (notetaker). The two discussed the need to
continue an economic dialogue, as well as continued US
support for democracy in Egypt, Egyptian political reform, US
funding for civil companies, and Ayman Nour. The Ambassador
informed the Prime Minister of the decision to move Egypt to
the Special 301 Watch List, and off the Priority Watch List.
They discussed the upcoming visit to Egypt of USTR Susan
Schwab. Nazif reviewed Egypt's continuing economic reform
efforts. On the political side, Nazif maintained that the US
is in "breech" of the 2004 Welch-Aboul Gheit agreement on ESF
funding for NGOs, and said that Ayman Nour would serve out
his prison term. He underlined, however, the important
strategic relationship between Egypt and the United States,
observing that we have managed this relationship in a
"fruitful and positive way" for thirty years. End Summary.



2. (C) In the Ambassador's April 29 introductory call on
Prime Minister Nazif, he opened by underlining the important
strategic relationship between Egypt and the United States,
observing that the two countries have been able to manage
this relationship in a "fruitful and positive way" for the
past thirty years. He noted that although there are now some
challenges, overall the relationship remains positive.

Economic issues: Special 301, Trade and Reform


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3. (C) The Ambassador said the USG decision to move Egypt
from the Special 301 priority watch list to the watch list
reflects Egypt's progress IPR protection, and that we will
continue to work with the Egyptian government in areas where
there are still issues. The Prime Minister noted that
Egyptian progress on IPR began with an umbrella agreement
with the software companies, under which Egypt bought and
installed legal software much more cheaply. Now, he said,
the entire educational system and the government uses
licensed software. He suggested this might be a model for
the pharmaceutical industry.



4. (C) The Ambassador said that USTR Susan Schwab will
attend the WEF and hopes to discuss a way forward on trade
issues with Minister of Trade Rachid. The Ambassador hoped
that the US and Egypt would be able to identify mutually
agreed upon interim goals to work towards on trade, in the
absence of FTA negotiations, although a MEFTA remained our
overarching goal. Nazif agreed that a MEFTA is Egypt's
longterm goal as well. He mentioned the possibility of
restarting trade talks within the Trade and Investment
Framework Agreement (TIFA) to keep the dialogue open, but
also mentioned the importance of other channels of
communication, including the ongoing strategic dialogue, and
noted that he encourages his ministers to visit the US.



5. (C) Nazif said that his government continues to focus on
economic reform including tax cuts, removing trade barriers,
enacting customs reform and creating trading relationship.
He said that reform efforts continue, including within the
government, labor market, internal market regulation and in
other areas, and observed that some of the changes needed are
cultural. The prime minister cautioned that some reforms
have had a negative impact on lower income groups, and that
the GOE is putting together a social program to support them,
but that this takes time. He also cited the economic
challenge posed by increased food and energy prices.

Political reform in Egypt


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6. (C) The Ambassador explained she would like to create a
constructive dialogue in areas of bilateral disagreement, for
example, democracy and human rights. She stressed that the
President and the Secretary share the democracy agenda, ad
did the US Congress. She predicted that these issues will
remain important in any new administration. She noted that
Egypt has made progress but that the US and Egypt have
somehow lost the ability to talk about these very important
issues and said it would be useful in discussions with
Congress if we could point to an Egyptian plan on democracy.



7. (C) Nazif responded that Egypt does have a plan for
political reform, citing Mubarak's 2005 campaign platform
advocating constitutional changes, and the 2005 presidential
election itself. He noted that constitutional changes have
empowered opposition parties, although Egypt's centralized
party system is transforming very slowly. The opposition
parties still, he said, have a very small base of support and

have shown no real leadership. Nazif said the government
tolerates freedom of expression, noting that opposition
opinions, criticism of the government and political protest.
In this regard, he said, Egypt compares favorably to anywhere
in the region, as well as to "where we were five to ten years
ago." Nazif also said the way President Bush had framed his
comments about democracy in Sharm during his January visit
was "excellent, very balanced, very much appreciated."
Privately, he said, "we talk about everything, publicly is
another matter." He had also read the Ambassador's
congressional testimony, and that "there was nothing wrong
with it," despite criticism in the Egyptian press. He
emphasized, however, that "private, direct dialogue" was the
best to way to discuss these issues.

Funding for Civil Companies


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8. (C) The Ambassador previewed plans to raise direct USG
funding to civil companies with Minister of International
Cooperation Fayza Aboulnaga on May 4. She said that US and
Egypt must come to terms with the US need to proceed with
direct funding, and hoped we could resolve current
differences. The Ambassador hoped to return to the 2004
agreement, which allowed the US to fund the civil companies.
She underlined that under the agreement "nothing is secret"
but that the funding is legal as long as we are funding legal
entities. She emphasized that the Administration wants to
meet its Congressional mandate for direct funding in a way
that is respectful of the need for transparency and Egyptian
sovereignty. Nazif said that the Egyptian government
believes the 2004 agreement has been "breeched." The
Ambassador responded that the US does not agree. Nazif said
Egypt had agreed some ESF would fund NGOs working legally in
Egypt. He asked why the US insists on funding specific
entities that Egypt does not consider NGOs. The civil
companies, he said, are not NGOs under Egyptian law. "We
have tens of thousands of NGOs. Why do you insist on funding
those few? And why do you fund specific persons?" (NOTE:
These comments refer to Said Eddin Ibrahim and the Ibn
Khaldoum Center.)



9. (C) The Ambassador replied that sometimes there is
specific Congressional interest in certain NGOs and
individuals and that if the registration process for NGOs
were faster and more predictable, we might fund more,
although we continue to see funding the civil companies as a
legal option. "We are funding Egyptian groups that are
trying to promote democracy and governance," she said. At
this time, she noted, there is no "realistic ability"for
many of these groups to register as NGOs. Nzif responded
that "what we decide is an NGO is or prerogative. When we
decide not to approve 1,2, 5 or 7 NGOs out of 10,000 we
expect you to unerstand." He gave a hypothetical example of
Egyt funding an organization linked to Al Qaeda in th U.S.,
observing that the US would object. In reponse, the
Ambassador said that if there was anyspecific information
that the civil companies th US is funding are linked in any
way to terroris or criminal activity that "we would of
course tke that very seriously," and hoped that the GOE
wuld give us that information. Nazif explained tha the GOE
concerns about these groups are linked o security. "You
must also understand some of or needs. There are some
working in a subversiveway." He observed that some of these
groups are etting money from the US through other channels,
and suggested that it was the ESF that "causes a dscomfort
that we can do without."



10. (C) Fially, Nazif explained, Egypt is passing through a
very difficult period and faces many challenges, citing the
Muslim Brotherhood, and the outcome of the 2006 Palestinian
elections. The Ambassador commented that the US has
confidence in Egypt's ability to manage the political
competition, and to make sure that responsible people will be
allowed to enter the political space.

Ayman Nour


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11. (C) Nazif complained that the American public and
Congress do not see the progress on reform that has been
made. The Ambassador agreed certain things have come to
symbolize Egypt in the US, including the case of Ayman Nour.
Nazif said the Ayman Nour case is a no-win situation, and no
one in Egypt understands the American view. The Ambassador
observed that the decision on Ayman Nour is Egypt's, but that
we should all be aware of its impact on US opinion. Nazif
said that "the way it is built up in the US is the opposite
of the way it is built up here. If there is a pardon, it
will be seen as something the US has insisted on. He is
going to serve out his term," he said, and suggested we focus
on positive developments in the democracy area instead.
SCOBEY