U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

65–843 CC

" ! COMMITTEE PRINT 106TH CONGRESS

2d Session

WMCP:

2000

106–12

COMMITTEE ON WAYS AND MEANS

U.S. HOUSE OF REPRESENTATIVES

REPORT

ON

TRADE MISSION TO CZECH REPUBLIC,

EGYPT, AND MOROCCO

JULY 27, 2000

Prepared for the use of Members of the Committee on Ways and Means

by members of its staff. This document has not been officially approved

by the Committee and may not reflect the views of its Members

ii

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

SCOTT MCINNIS, Colorado

RON LEWIS, Kentucky

MARK FOLEY, Florida

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

LLOYD DOGGETT, Texas

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

(iii)

LETTER OF TRANSMITTAL

U.S. HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

Washington, DC, July 27, 2000.

Hon. BILL ARCHER,

Chairman, Committee on Ways and Means,

House of Representatives, Washington, D.C.

Dear CHAIRMAN ARCHER: I am pleased to transmit to you the enclosed delegation report on the recent Committee mission to the

Czech Republic, Egypt, and Morocco. This report contains an overview of the mission, summaries of meetings with foreign and U.S.

officials, and copies of several documents pertinent to the mission.

The report describes the bilateral economic and trade issues

which were investigated during the trip.

Sincerely,

ANGELA P. ELLARD

Staff Director and Counsel, Subcommittee on Trade

Enclosure.

v

MEMBERS OF THE DELEGATION

MEMBERS OF CONGRESS

HON. BILL ARCHER, Chairman

HON. NANCY JOHNSON

HON. AMO HOUGHTON

HON. JENNIFER DUNN

HON. ROB PORTMAN

HON. PHIL ENGLISH

HON. JIM MCDERMOTT

HON. JOHN TANNER

STAFF

ANGELA ELLARD

DON CARLSON

JANICE MAYS

DONNA THIESSEN

TIM REIF

KAREN HUMBEL

vii

C O N T E N T S

Page

Letter of Transmittal ............................................................................................... iii

Members of the Delegation ..................................................................................... v

Overview of the Mission .......................................................................................... 1

Czech Republic .................................................................................................. 6

Egypt ................................................................................................................. 18

Morocco .............................................................................................................. 32

Attachments ............................................................................................................. 45

(1)

OVERVIEW OF THE MISSION

From April 14 through 21, 2000, a bipartisan delegation of the

Committee on Ways and Means led by Chairman Bill Archer visited the Czech Republic, Egypt, and Morocco to conduct a factfinding mission on trade and economic issues. The primary purpose

of the trip was to meet with government and business officials in

each of the three countries to discuss bilateral, regional, and multilateral trade issues and opportunities.

Specifically, the delegation discussed a number of issues surrounding the Association Agreements which each of the three countries have negotiated, and which the Czech Republic and Morocco

have signed and implemented, with the European Union (EU).

These agreements provide European firms with duty-free treatment for industrial goods, while maintaining tariffs against U.S.

industrial goods, in markets covered by the agreements. Prior to

departure, Chairman Archer, Congressman Rangel, Congresswoman Dunn, and Congressman McDermott wrote to U.S. Trade

Representative Charlene Barshefsky and to Secretary of Commerce

William Daley expressing concern about the immediate impact of

this tariff differential in the civil aircraft sector (Attachments A

and B). This particular issue was consistently raised by the delegation in meetings. All of the countries visited by the delegation are

beneficiary countries under the U.S. Generalized System of Preferences (GSP), and the delegation noted that the tariff differentials

created by Association Agreements with the European Union violate the GSP requirement that U.S. firms be afforded treatment by

beneficiary countries no less favorable than what they give to other

countries. The delegation also expressed concern that the EU Association Agreements violate the requirements of the World Trade

Organization (WTO) that free trade agreements cover ‘‘substantially all trade’’ and be fully implemented within 10 years.

The delegation also discussed a number of issues related to economic reform in each of the three countries, including privatization,

rule of law, transparency in government procurement, and intellectual property rights protection. In Egypt, the delegation explored

the possibility of a bilateral free trade agreement, as well as regional economic integration as an essential component of the Middle East peace process. During its meetings in each country, the

delegation discussed the possible launching of a comprehensive

round of trade negotiations in the WTO and ways to build a consensus in this regard among both developed and developing countries. Finally, the delegation discussed a number of foreign policy

issues, including EU enlargement, the Middle East peace process,

and the situation in Iraq, Iran, and Sudan.

2

Prague, Czech Republic

The delegation first traveled to Prague, Czech Republic. On April

16, the delegation received a briefing from U.S. Ambassador John

Shattuck and his staff focusing on political, economic, military, and

trade issues. The delegation met on April 17 with the American

Chamber of Commerce (AmCham) in Prague to discuss the perceptions of the U.S. business community on Czech economic reform

and on the Czech Republic’s accession to the European Union.

AmCham members explained that their current goals are to promote legislative, judicial reform, industrial, and financial reform in

the Czech Republic. Specifically, the AmCham is focused on encouraging privatization and regulatory reform in the banking, energy,

and telecommunications sectors.

The delegation next met with Petr Kubernat, State Secretary for

Foreign Affairs, regarding the Czech Republic’s accession to the

European Union. Mr. Kubernat provided the delegation with an

overview of the EU accession process. The Czech Republic began

negotiations on EU membership in 1998 and hopes to be ready for

EU accession by 2003. The Czech government is currently harmonizing Czech laws and regulatory procedures to bring them into

compliance with EU requirements. Mr. Kubernat asked the delegation to support the Czech Republic’s decision to join the European

Union, but offered assurance that his government also wants to be

partners with the United States. In response to a question from

Congressman English on the tariff differential issue involving civil

aircraft, Mr. Kubernat stated that the Czech government has to

consult with the European Union on any tariff changes and that

the government may be interested in seeking a multilateral solution in the next Round of negotiations in the World Trade Organization.

The delegation also met with Oldrich Dedek, Vice Governor of

the Czech National Bank on April 17 regarding monetary policy

and bank privatization. In response to a question from Chairman

Archer regarding the ability of the Czech National Bank to shield

itself from political influence, Mr. Dedek responded that an independent central bank is a condition of EU membership and that

the IMF has been supportive of the Bank’s independence. On bank

privatization, Mr. Dedek informed the delegation that there is a

full political commitment within the Czech government to complete

this process swiftly as a necessity to attract foreign investment capital.

The delegation’s schedule on April 17 concluded with a meeting

with the Prime Minister of the Czech Republic, Milos Zeman.

Prime Minister Zeman noted that the Czech Republic has undertaken significant economic reforms and that a high priority of the

current government is to attract long-term, stable foreign investment. Chairman Archer responded that the United States and the

Czech Republic share a strong political and security bond that

overshadows the small areas of friction in the bilateral relationship. In response to questions from Congresswoman Dunn, Congressmen Portman and McDermott, and Congresswoman Johnson

on the tariff differential issue adversely affecting Boeing and other

U.S. companies arising from the Czech Republic’s accession to the

European Union, Prime Minister Zeman stated his willingness to

3

discuss the issue but expressed frustration with Boeing’s marketing

of certain military jets with its partner Aero Vodochody. Congressman Portman and Congresswoman Johnson explained that under

U.S. law the trade preferences extended to the Czech Republic

under the Generalized System of Preferences require the Czech Republic to extend no less favorable treatment to U.S. products in the

Czech market than is given to the products of other countries.

The delegation then traveled to Egypt.

Egypt

On April 18, the delegation received a briefing from U.S. Ambassador Daniel Kurtzer and U.S. Embassy staff on the political,

trade, economic, strategic, and foreign assistance issues in the

U.S.-Egyptian bilateral relationship.

The delegation then met with Egyptian President Hosni Mubarak. Chairman Archer commended President Mubarak for his role

as a peacemaker in the region and noted the common goals of the

United States and Egypt in launching a new round of trade negotiations in the World Trade Organization. President Mubarak expressed his appreciation for the close relations between the United

States and Egypt and his interest in developing closer bilateral economic relations through the negotiation of a free trade agreement.

The President explained that Egypt’s top export to the United

States is textiles, which is viewed by the United States as a threat

in the U.S. market despite the small level of Egyptian exports. He

stated that developed countries should not restrict the ability of the

developing world to produce cheaper goods because increased trade

enables developing countries to purchase more goods produced by

the developed world. President Mubarak promised that the level of

intellectual property rights protection in Egypt would improve. The

delegation also discussed a number of foreign policy issues in the

Middle East with the President, including the peace process, Iraq,

and Iran. On the peace process, President Mubarak observed that

the big problems remain, most significant of which is giving the

Palestinians some satisfaction in the peace agreement to build long

term stability.

Afterward, the delegation met with Dr. Ahmad Fathy Serour,

Speaker of the People’s Assembly, regarding the role of the People’s

Assembly in the Egyptian Government. Speaker Serour explained

that President Mubarak’s party, the National Democratic Party,

enjoys a 90 percent majority in the People’s Assembly and has succeeded because it is neither on the right or the left of the political

spectrum. Legislative initiatives are generally submitted to the

People’s Assembly by the Executive Branch. At present, the People’s Assembly is expecting legislation on intellectual property

rights protection. In response to a question from Chairman Archer

on the Middle East peace process, Speaker Serour noted the benefits of peace to the entire region, but observed that the issues involving Syria and the Golan Heights, the withdrawal of Israel from

Lebanon, and the resettlement of Palestinian refugees now living

in Lebanon will be difficult to resolve.

The delegation also met on April 18 with Egyptian Minister of

Foreign Affairs Amre Mahmoud Moussa regarding a number of foreign policy matters. Chairman Archer asked Minister Moussa to

4

share his views with the delegation on the civil war in Sudan. Minister Moussa explained that the situation is very complicated due

to the multiple factions involved in the civil war. The Egyptian government is urging the various leaders to meet and to chart a common future for Sudan. Congresswoman Johnson asked the Minister

for his views on Iraq. In response, Minister Moussa indicated that

the Arab world is satisfied with the United Nations resolutions

which would lift sanctions under certain conditions, however, he

emphasized that a solution to the problems in Iraq must be found

so that the Iraqi people do not suffer indefinitely. Minister Moussa

also said in response to a question from Congressman Houghton

that Egypt views its relations with the United States as its top priority, noting the strength of the bilateral military and strategic relationship. Minister Moussa indicated that Egypt would like to pursue closer economic relations with the United States through the

negotiation of a free trade agreement.

The delegation next attended a luncheon hosted by the American

Chamber of Commerce in Egypt in the delegation’s honor. Chairman Archer addressed the attendees and explained the jurisdiction

of the Ways and Means Committee and the trade legislation expected to be considered by the 106th Congress. The Chairman also

took questions from the audience on economic issues, as well as

U.S.-Egyptian bilateral and multilateral relations.

The delegation concluded business in Cairo in a meeting with

Youssef Boutros Ghali, Minister of Economy and Foreign Trade, on

bilateral and multilateral trade issues. In particular, the Minister

emphasized Egypt’s strong interest in negotiating a free trade

agreement with the United States to provide the institutional

framework for Egypt to implement necessary economic reforms. He

noted that Egypt has negotiated an Association Agreement with

the European Union, but has not signed it because the European

model of free trade is different. The Minister warned, however, that

American firms will lose out in the Egyptian market if the Association Agreement with the European Union is signed and implemented, but no free trade agreement is reached with the United

States. The Minister indicated that a WTO consistent law on intellectual property protection will be submitted by the government to

the People’s Assembly in the near future and pointed out improvements consistent with WTO obligations and standards in Egyptian

customs and customs valuation practices. In response to a question

from Congressman McDermott on labor and the environment, the

Minister emphasized that while these are important matters, they

have no place in trade negotiations and noted the concern in the

developing world that these issues are really a ‘‘back door’’ effort

by developed countries to impose trade sanctions.

On April 19, 2000, the delegation then traveled to Luxor, Egypt

and was briefed by Robert K. Vincent, Director of the American Research Center in Egypt, which has a federal grant from the U.S.

Agency for International Development (USAID) to preserve and restore antiquities in Upper Egypt. The delegation visited sites to observe the type of work supported by the USAID grant.

The delegation then traveled to Morocco.

5

Rabat, Morocco

On April 21, 2000, the delegation was briefed in Rabat, Morocco

by U.S. Ambassador Edward Gabriel and U.S. Embassy staff on a

variety of issues in the U.S.-Morocco relationship, as well as the

historical background of the bilateral relationship, political developments in Morocco since the death of King Hassan II, the pace and

scope of Moroccan economic reform, Morocco’s debt burden and

debt relief initiatives, and the challenges facing Morocco in the

area of social development.

The delegation next met with the Moroccan Minister of Industry,

Commerce, and Handicrafts, Alami Tazi, regarding trade liberalization and economic reform in Morocco. Minister Tazi asked the delegation to convey the favorable investment climate in Morocco to

U.S. investors. The Minister noted that Morocco has suffered a severe drought which has dramatically affected economic growth in

the country. Chairman Archer, Congresswoman Johnson and Congressman McDermott expressed concern to the Minister about U.S.

firms being disadvantaged in the Moroccan market as a result of

Morocco’s Association Agreement with the European Union. The

Minister expressed his hope that closer bilateral economic relations

could be developed between the United States and Morocco as a result of bilateral dialogue under the U.S.-Moroccan Trade and Investment Framework Agreement and his belief that two-way trade

between the United States and Morocco should be three or four

times its current annual level of $1 billion. On the question of the

tender that Boeing has bid on with Royal Air Maroq, Minister Tazi

stated that he was confident that the strongest supplier would win

the contract and that he would support Boeing in its effort if the

contract were a matter within his jurisdiction.

The American Chamber of Commerce in Morocco hosted a luncheon meeting for the delegation on April 21. Chairman Archer addressed the attendees, explaining the jurisdiction of the Ways and

Means Committee in the U.S. Congress and trade legislation expected to be considered before the end of the year. The Chairman

also expressed the concern that U.S. firms are being disadvantaged

in the Moroccan market vis-à-vis their European competitors and the hope that Morocco would open itself to foreign investment to raise the standard of living for the Moroccan people. Chairman Archer took questions from the audience on the possibility of

expanding the African Growth and Opportunity Act to include Morocco, on the possibility of expanding products eligible under the

Generalized System of Preferences, and on the possibility of the

United States entering into a debt-equity swap agreement with Morocco.

The delegation concluded business in Morocco on April 21 in a

meeting with Prime Minister Abderrahmane Youssoufi. The Prime

Minister shared his views with the delegation on a number of domestic and foreign policy issues, including the Middle East peace

process, regional integration in North Africa, democratization, Morocco’s debt burden and social development, and trade and economic issues. He also noted the challenges presented to the entire

country by the drought affecting Morocco. The Prime Minister discussed Morocco’s efforts to attract more foreign investment to serve

as a catalyst for economic growth, including through the adoption

6

of a transparent government procurement process, and expressed

his support for the negotiation of a free trade agreement between

the United States and Morocco. In addition, the Prime Minister

spoke about Morocco’s Association Agreement with the European

Union, which entered into force in March 2000. Chairman Archer

and Congresswoman Johnson expressed concern that this agreement will disadvantage U.S. goods in the Moroccan market over

time as U.S. products remain subject to tariffs while European

goods will not. Congresswoman Dunn and Congressman

McDermott discussed their strong interest on behalf of The Boeing

Company in a transparent procurement process in the tender that

has been issued by Royal Air Maroq. The Prime Minister also emphasized that Morocco is creating educational and economic opportunities for women.

CZECH REPUBLIC

Country Team Briefing by Ambassador John Shattuck and

U.S. Embassy Staff

Prague, Czech Republic; Sunday, April 16, 2000

Participants: John Shattuck, U.S. Ambassador to the Czech Republic; Steven Coffey, Deputy Chief of Mission; Renee Earl, Public

Affairs Counselor; Colonel Ray Canel, Director, Czech Military

Contracting/NATO Accession; Colonel Scott Sawyers, Assistant Defense Attache; John Morris, Director Political and Economic Section; Judy Garber, Economic Section; Mike Murphy Commercial

Counselor

A country team briefing was provided to the delegation at a dinner hosted by Ambassador John Shattuck at his residence in

Prague. The Ambassador welcomed the delegation and introduced

the members of the U.S. Embassy Staff who were present.

Ambassador Shattuck explained that the Czech Republic is a

country of great importance to U.S. interests. Specifically, the Ambassador noted three areas of significance in the bilateral relationship: (1) security issues and NATO Accession; (2) economic prosperity, i.e. trade and investment; and (3) basic issues of democracy

as the Czech Republic ‘‘works its way into the family of democratic

nations.’’

The Ambassador noted that the Czech Republic has strong ties

to the United States. Its nationhood is a product of the vision of

President Wilson and its founder, Tomás Garrigue

Mazaryk, who actually wrote the Constitution of Czechoslovakia on

a dining table in Pittsburgh, Pennsylvania. In addition, today there

are over 1 million Czech-Americans.

The bad news, Ambassador Shattuck added, is that the Czech

people have been occupied and repressed by outsiders for most of

their history as a nation. Except for 1918 to 1937 and since 1989,

the Czech people have not been free, and even today they live

under a legacy of fascism and communism. After the 1968 rebellion

was crushed by the Soviet Union, he noted, Czechoslovakia entered

a period known as ‘‘normalization’’ in which the country attempted

to adjust to its role in the Soviet bloc. When the Velvet Revolution

occurred in 1989, Ambassador Shattuck explained, Czechoslovakia

was economically better off than most communist states, having

7

adapted to communism, and served as the economic engine of Eastern Europe.

Ambassador Shattuck went on to describe the Czech Republic’s

transition since 1989, and indicated that the country is still in

transition today. The government did not undertake economic reforms quickly since the country was doing well in comparison to its

neighbors in the former Soviet bloc. Instead, he explained, they underwent a form of pseudo-privatization, which included a system

where vouchers representing ownership shares in state enterprises

were distributed, but no fundamental management changes were

implemented. The banking system remained tied to the government, and the legal system was not reformed. Only now, he indicated, is the country beginning to move out of recession and undertaking necessary economic reforms. Reform, however, has been

frustrated by the current coalition government between Prime Minister Milos Zeman’s Social Democratic Party (CSSD) and former

Prime Minister Vaclav Klaus’ Civic Democratic Party (ODS). Additionally, Ambassador Shattuck explained, President Vaclav Havel

has a weak hand to play since he has very few executive powers.

President Havel, however, remains an important source of stability

and is the longest serving of current European leaders.

Ambassador Shattuck further explained that there are two major

forces driving the Czech Republic toward the West and reform: (1)

NATO accession; and (2) EU accession. In this regard, the Ambassador expressed the view that the United States should help the

Czech Republic and should work toward a U.S.-Czech partnership

for security, economic prosperity and democracy. He noted the

Czech Republic, fundamentally, needs transparency, democracy

and an improved legal system. Already, the United States is setting up a regional judicial training institute in Prague and is providing advice on banking privatization. The United States, he indicated, should be prepared to share expertise with Czech government officials ‘‘to keep them from shooting themselves in the foot’’

and creating economic disadvantages for themselves, as they are

doing with the 4.8 percent tariff differential issue in the civil aircraft sector.

At this point, Ambassador Shattuck turned the briefing over to

Judy Garber from the Embassy’s Economic Section, who stressed

that the tariff differential issue is at the top of the U.S. agenda in

the Czech Republic. In March 2000, she explained, a delegation led

by Assistant USTR for Europe and the Mediterranean, Cathy

Novelli, came to Prague and discussed this specific issue with

Czech government officials. Ms. Garber noted that the Czech Cabinet did consider a tariff waiver proposal, but voted it down. She indicated that copies of the letters from Chairman Archer, Congressman Rangel, Congresswoman Dunn, and Congressman McDermott

to the Administration, which were sent prior to the delegation’s

visit, were delivered to Czech officials in mid-April.

Ms. Garber added the Czech Republic has been put on the Special 301 ‘‘watch list’’ for deficiencies with respect to intellectual

property rights (IPR) protection. Specifically, IPR enforcement

through the legal system is lacking both in terms of slowness and

the type of penalties allowed, and the Czech Republic has not met

its TRIPs requirement in the WTO in terms of both 50 year retroVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
8

active copyright protection (although President Havel may sign corrective legislation soon) and ex parte seizure. Piracy, she noted, is

decreasing, and it is clear that there are new companies in the

Czech Republic whose products can benefit from strong IPR protection. An example of such a company is Netbeams, which was recently bought by Sun Microsystems.

In general, Ms. Garber indicated, the Czech Republic does have

a number of advantages. Foreign investment is at record levels,

and its labor is of good quality and cheaper than many others in

Europe. Ms. Garber pointed out that the Czech Republic is centrally located, and the government is granting new tax holidays for

investors. Among foreign investors, Germany ranks number one,

followed by the Netherlands and the United States. In the last 12–

14 months, she specified, the Czech Republic has received more

than $1 billion in foreign investment, including $500 million in the

energy sector from such U.S. companies as El Paso Energy. Railroad privatization, she noted, will come later, as will the bulk of

the energy sector. Ms. Garber explained that three U.S. companies

are currently involved in efforts to buy the Czech national gas pipeline company, Transgas. Generally speaking, privatization has been

complicated by Czech Republic nationalism, even though keeping

companies in Czech hands has not produced successful results.

Part of the fear associated with increased foreign ownership, she

noted, is historical in nature and is directly related to anti-German

sentiment. It is clear, however, that successful privatizations need

both capital and strategic partners to succeed. In terms of U.S.

companies, strategic partnerships have emerged involving Motorola, Ford Motor, and Hayes Limeritz (a Detroit wheelmaking company involved in a new aluminum wheel venture).

Chairman Archer expressed his appreciation to the Ambassador

for the comprehensiveness of his briefing and indicated that members of the delegation had both general and individual interests in

specific issues related to the Czech Republic. He asked to hear from

the two military attaches present regarding defense and NATO security issues.

The Ambassador responded by reiterating that the Czech Republic had joined NATO one year ago and had participated in the

Kosovo campaign despite its strong ethnic Slavic ties to Yugoslavia.

He said that the new Czech forces are better trained and lean, having been scaled down in a major way from its prior Warsaw Pact

levels. The United States has expressed a concern about the cost

of some of procurement decisions, such as a large order of Czech

manufactured L–159 planes and its potential to drain monies needed for personnel.

Colonel Ray Canel noted that nuclear proliferation is an issue of

joint interest to the United States and the Czech Republic. The

United States expressed concern about a recent $40 million deal involving a Czech company selling equipment for a nuclear reactor

in Iran, and as a result the Czech government intervened to stop

the deal. With regard to counterterrorism, Colonel Canel expressed

the view that the Czech Republic is not well-equipped to deal with

modern terrorist threats and that U.S. assistance to Czech law enforcement agencies is both ongoing and valuable.

9

Colonel Scott Sawyers commented that NATO accession has gone

well and that the Czech Republic has both met basic NATO goals

and developed a good five-year plan. Overall, he noted, it is widely

believed that the Czech are ‘‘pulling their own weight’’ within

NATO. Fifty percent of the Czech general officers and top commanders have had training in western schools, including large

numbers of them in the United States. As a group, Colonel Sawyers explained, the Czech military looks to the United States for

leadership given their historical experience in which Europeans

have let them down and the fact that they cannot afford a military

of the size they maintained under the Warsaw Pact. NATO accession has served to give the Czech military direction for the future.

Colonel Sawyers went on to describe the problems still facing the

Czech military. Among them are: (1) the continuing impact of the

downsizing of forces from 200,000 men ten years ago to 50,000–

60,000 today; (2) the division of resources related to the split with

Slovakia (the Czech Republic received two-thirds of all military resources); (3) the fact that the Czech Republic has had eight Ministers of Defense in the last nine years; (4) the need to modernize

despite having met the NATO goal of allocating 2% of budget to defense; and (5) the fact that the MIG–21 aircraft in the Czech air

force will reach the end of their planned lifespan in 2003.

Colonel Canel added that the upcoming decision by the Czech Republic on procurement of fighter aircraft has come down to a choice

between the Grippen offered by BAC on behalf of a British/Swedish

group versus F–16s from the United States. In response to a question from Chairman Archer as to what military equipment was produced domestically, it was noted that current main products include a T–72 tank upgrade package, TATRA trucks, and small

arms.

Congresswoman Johnson inquired about the degree to which

smaller U.S. companies are active in the Czech Republic. Steven

Coffey, Deputy Chief of Mission, stated that 317 U.S. companies

are presently active in the Czech Republic and that U.S. investors

are more diverse than those from any other country.

Congressman Houghton inquired about the delegation’s breakfast

meeting with the American Chamber of Commerce on the next day,

asking whether Czech businesses would be represented. The Ambassador replied that Czech businesses would be present, including

representatives from the banking sector and the Czech national

airline, CSA.

In response to numerous questions from delegation members, the

Ambassador briefed the delegation on the topics that might come

up at all of the scheduled meetings in Prague. Among the issues

discussed were: (1) monetary policy including the independence of

the central bank; (2) tariff differentials that discriminate against

U.S. businesses; and (3) when the Czech Republic might join the

European Union and the concern that the country might fall out

of the first tier of countries granted EU membership.

The delegation then discussed the letters on the civil aircraft tariff differential sent by Chairman Archer, Congressman Rangel,

Congresswoman Dunn, and Congressman McDermott, which were

presented to the Czech Government in mid-April. In particular, the

delegation raised the point that under the Generalized System of

10

Preferences (GSP), the Czech Republic is required to provide tariff

treatment to U.S. firms no less favorable than the Czech Republic

extends to its other trading partners. Ultimately, the tariff differential issue could result in the suspension of the Czech Republic’s GSP benefits. Ambassador Shattuck also informed the delegation of the Czech Deputy Trade Minister’s planned visit to Washington, D.C. in May.

In conclusion, the Chairman again thanked the Ambassador and

his staff for the briefing and for hosting the dinner.

Breakfast Meeting with the American Chamber of Commerce in Prague and Various Czech Government Officials

Prague, Czech Republic; Monday, April 17, 2000

Participants: Charles Randolph, Chairman of AmCham;

Stacey Weston, Executive Director of AmCham; Vladimir

Dlouhy, Goldman Sachs and former Minister of Trade

and Industry; Jim Kunert, President of Zivnostenskq

Bank; Vlastimil Lorenz, Director General of the Ministry

of Trade; Jan Hanousek, Center for Economic Research

at Charles University; Paul Dvorak, Deputy Minister of

Finance; and other AmCham members

Following an introduction by Ambassador Shattuck, Charles

Randolph, Chairman of the American Chamber of Commerce

(AmCham) in Prague (Managing Partner, KPMG Peat Marwick)

described the AmCham’s priorities for the coming year. In particular, he noted that AmCham priorities are framed by three basic

principles: (1) to make the Czech Republic globally competitive for

American exports, investment, and operations; (2) to level the playing field among businesses; and (3) to promote greater transparency, both in terms of private sector disclosure and reporting requirements and in terms of the public sector legislative and regulatory processes.

Mr. Randolf noted that the Czech Republic is coming out of two

years of recession, but reported modest growth in the last three

quarters. Foreign investment in 1999 is at a record $5 billion, twice

the level of previous years. Inflation is under control and the Czech

economy can count among its advantages an educated work force

and a good geographic location. The main national task ahead, he

said, is to privatize the banking system, especially the nation’s

largest bank, Komercni Bank.

In light of the above principles, Mr. Randolph reported that the

spring agenda for the AmCham is threefold: (1) to promote legislative and judicial reform; (2) to promote industrial reform; and (3)

to promote financial reform. With respect to the legislative and judicial reform, he stated that the goal was ‘‘speed and accuracy.’’ Illustrations of achieving this goal include the establishment of a

bankruptcy court, training specialized judges and creating a specialized commercial court, and strengthening the legislative process

by strengthening the legislative drafting process.

Weston Stacey, Executive Director of the AmCham, explained

that the key item in the area of industrial reform involved reform

of Konsolidacni Bank. In particular, the key challenge is to priVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
11

vatize the bank and enable it to continue to provide credit to companies in the so-called ‘‘new economy’’ (companies with strong

growth rates and good survival prospects), while writing off bad

debts owed by companies in the ‘‘old economy’’ (companies that are

not making a successful adjustment from the state-dominated economy). Mr. Stacey noted that Konsolidacni Bank has more than

9,000 companies in its portfolio.

Two other areas of focus for the AmCham in relation to industrial reform are energy and telecommunications policy reform. On

energy policy reform, the AmCham is seeking privatization and

greater liberalization. On telecommunications policy reform, the

AmCham is seeking greater openness to competition. The AmCham

sees the successful development of the telecommunications sector

in particular as key to the development of the new economy.

Turning to the area of financial reform, Mr. Stacey said the key

is to institute some form of creditor protection. For example, secured loans are often ‘‘secured’’ by property that has been used to

secure more than one loan, greatly reducing the level of security

provided to creditors. Similarly, the bankruptcy law has not been

adequately used because creditors are not confident they can get

enough of their money out if they put companies into bankruptcy.

In this area, steps such as registration of securities are needed.

Vladimir Dlouhy, a former Minister of Trade and Industry, currently with Goldman Sachs, made two observations. First, the

Czech Republic is making a successful transition from a centrally

planned to a market economy. The transition has been harder because the Soviet Union concentrated heavy industry in Czechoslovakia. However, this disadvantage has turned into an advantage

in the long run, because it meant that these industries would make

important contributions to the Czech economy once privatized and

reformed. Second, he stated that the government’s biggest mistake

was not to privatize banks in 1993, after the first two waves of industry privatization. In short, he commented that ‘‘excesses’’ were

inevitable in the transition process, and that the key is to maintain

the right balance in macroeconomic policy and privatize the banking sector. He stated that, in his view, the transition process from

communism to a market economy will take approximately two decades. He stated that he is confident that the Komercni bank will

be privatized by the end of 2000 or the first quarter of 2001.

Jim Kunert, President of Zivnostenskq bank, stated that the key

lesson Czechs have learned since 1989 is that money plays a key

role in an economic transition. Further, it is not what entity owns

the banks (including whether it is a domestic or foreign entity), but

what the banks offer in the way of goods and services, that is key.

Chairman Archer thanked the presenters for their comments and

introduced the Members of the delegation and explained the role

of the Ways and Means Committee. In particular, he mentioned

that under the U.S. Constitution, Congress, not the President, is

given primary authority over trade with foreign countries.

Congresswoman Johnson expressed concern over actions by the

Czech government that discriminate against imports of U.S. aircraft, aircraft engines, automobiles and other products. She expressed the view that the Czech government should not sacrifice its

12

trade relationship with the United States to accord these kinds of

special benefits to the European Union.

Vlastimil Lorenz, Director General of the Ministry of Trade, responded that the aircraft tariff issue is under study and that the

government is also working on the intellectual property protection

issues that U.S. negotiators have raised. He mentioned that the

Czech government has raised with the United States the issue of

increasing and restructuring the U.S. quota on imports of cheese

and that the Czech Republic also hopes to renegotiate the textile

quota.

Congressman Tanner asked how far along the government is in

creating an independent judiciary and an independent financial

regulatory authority to serve as an honest broker for regulatory

matters, an issue which foreign investors, including U.S. investors,

see as critical to the safety and soundness of investments.

AmCham Chairman Randolph commented that reform is proceeding unevenly. For example, 90 percent of credit unions are considered fraudulent, so there is a long way yet to go.

Ambassador Shattuck commented that a judicial reform package

is pending before the Parliament, and the American Bar Association’s Central and Eastern Europe project is scheduled to open a

regional training institute in Prague in May, with the support of

the European Union and full support of the Czech Ministry of Justice.

Jan Hanousek of the Center for Economic Research at Charles

University commented that often Czech government officials use

the EU convergence process as a smokescreen or excuse for not

taking steps the United States or other countries request.

Congressman Portman asked the former officials to comment on

health and pension reform. The Deputy Minister of Finance, Paul

Dvorak, stated that those areas are not in his jurisdiction, which

is limited to taxes and customs duties. On the subject of the aircraft tariff, he expressed the view that there might be problems

under the Czech Republic’s obligations to the World Trade Organization with providing a tariff waiver to the United States on large

civil aircraft.

Former Minister of Trade and Industry Vladimir Dlouhy stated

that the United States has been a good trade partner to the Czech

Republic, starting in 1989, even before the European Union, by extending most favored nation (MFN) benefits.

Congresswoman Dunn stated that there were no WTO problems

of which she is aware with granting the waiver -in fact, the problem is in granting the EU preferential access without providing

that benefit on an normal trade relations (NTR) basis. Congresswoman Dunn noted that the United States is very serious about receiving the waiver and must receive it swiftly. Mr. Lorenz responded that the issue was under ‘‘deep analysis.’’

Chairman Archer then drew the meeting to a close by emphasizing the importance of the bilateral trade relationship. He commented that the House would have to vote this year on whether to

remain in the WTO and the outcome, while highly likely, should

not be taken as a foregone conclusion. There were some, he commented, in both political parties who oppose expanding trade, and

supporters of this policy have to work hard to make their case. He

13

noted that, in this context, issues like the aircraft tariff issue are

important to enable trade supporters to demonstrate that ‘‘trade

works’’ for the United States and U.S. workers, farmers, and businesses.

Meeting with Petr Kubernat, State Secretary for the Ministry of Foreign Affairs

Prague, Czech Republic; April 17, 2000

Mr. Kubernat opened the meeting by explaining that he is responsible for the negotiation of the Czech Republic’s accession to

the European Union. Within the Ministry of Foreign Affairs, he

stated, there are two departments that deal with EU accession.

The first is responsible for internal coordination within the Czech

Republic. The second is responsible for external negotiation.

At present, Mr. Kubernat noted, there are six countries seeking

EU accession, one of which is the Czech Republic. He explained

that the Czech Republic began its EU accession negotiations in

March 1998. These negotiations are conducted bilaterally with the

EU Commission. All six candidate countries negotiate separately,

not as a block.

The first stage in the accession process, Mr. Kubernat informed

the delegation, is to identify legislation that needs to be modified

in the Czech Republic in preparation for EU accession. The Czech

Republic completed this stage of this process in 1999. The second

stage involves negotiation with the EU Commission. The Czech Republic has begun this process. The negotiations, he stated, are

being conducted in such a way that nothing is agreed to until there

is agreement on both sides on the entire package. Both sides can

go back in the negotiations and reopen issues if either side wants.

Mr. Kubernat explained that France will assume the EU Presidency during the second half of 2000. The Czech Republic expects

the negotiations on its accession to become clearer at that time.

The Czech government expects that some additional demands will

be made, but that it will begin to get a sense of timing for the completion of the negotiations. Mr. Kubernat added that the Czech Republic hopes to conclude the negotiations this year or next and to

be ready for accession by January 2003. Once negotiations are concluded, he said, the ratification process will begin, which is expected to take one year. The final package must also be ratified by

the European Parliament.

In the accession process, Mr. Kubernat said the Czech Republic

must harmonize its legislation to be as close as possible to the European Union. Passing legislation is not the final step, though. The

government is working to ensure that the legislation is implemented properly and that the necessary institutions exist for enforcement. He observed that the second regulatory review conducted by the European Union on the Czech Republic’s progress in

this area did not give the government a good report. The government has taken this criticism constructively, he said, and is looking

for ways to speed up pending legislation and to simplify procedures. The whole process is very difficult because the government

not only has to pass legislation but also has to reform institutions

that have entrenched interests. Mr. Kubernat noted that this situaVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
14

tion is ‘‘even more difficult to overcome than passing something entirely new.’’

Congressman Houghton asked Mr. Kubernat what message he

would like the delegation to take back to Congress. Mr. Kubernat

replied by saying that Czech officials had meetings the previous

week with Assistant Secretary of Commerce Patrick Mulloy. President Havel, he said, has supported the U.S. position on civil aircraft tariffs and has encouraged the government to find a solution.

He noted that the Ministry of Trade and Industry is the lead department in the Czech cabinet on this matter and that Ministry officials had told Assistant Secretary Mulloy that they would review

the issue and come up with a recommended course of action.

Congressman Houghton followed up by asking what Mr.

Kubernat personally believed is important for the delegation to do

when it returned to Washington. Mr. Kubernat asked the delegation to support the Czech Republic’s accession to the European

Union. At the same time, he assured the delegation that the Czech

Republic also wants to be partners with the United States in trade

and economic matters. He explained that they are reforming, not

only to join the European Union, but also ‘‘to put their own house

in order’’ by developing strong institutions. These institutions are

necessary to attract investment.

Congressman McDermott asked how the government is able to

pass legislation with a minority in the Parliament and whether

there is a consensus that transcends parties on EU accession. Mr.

Kubernat explained that there is a broad consensus among parties

to join the European Union, but it cannot be assumed that the opposition will simple agree to the legislative changes required. All

matters related to EU accession are discussed with the opposition

prior to legislation being considered at the Ministerial level.

Congressman McDermott then asked if changes are required in

the Czech pension system and whether the opposition is inclined to

go along with them given that they would help the current government. Mr. Kubernat replied by saying that the legislative changes

they are considering contain nothing more than what is required

for EU accession. The government tries to find a compromise position with the opposition on controversial issues that enables the

process to move forward.

Congressman English thanked Mr. Kubernat for his explanation

of the EU accession process and status of the Czech Republic’s negotiations. He said that the Czech Republic should not shut the

door to other bilateral relations during the accession process. Congressman English said that the tariffs maintained by the Czech Republic on locomotives may adversely affect his constituents over

time. He asked whether the government is willing to work with the

United States to find ways to address tariff differentials. In addition, Congressman English commended the Czech government for

having joined NATO and for helping to address the crisis in

Kosovo.

Mr. Kubernat replied by saying that the Czech Republic wants

to preserve and increase traditional trade flows with its trading

partners. The government will review the proposals on how to address the tariff differential issue and may seek a multilateral solution in the next round of WTO negotiations.

15

Congressman English followed up by saying that EU accession

does not require the tariff differential problem that now exists and

expressing his hope that the Czech Republic would avail itself of

the option it has to waive the tariffs. Mr. Kubernat pointed out

that the Czech Republic has to consult with the European Union

on any tariff changes that it is considering.

Chairman Archer closed the meeting by thanking Mr. Kubernat

for meeting with the delegation. Mr. Kubernat suggested that the

delegation raise the concern about the tariff differential problem

with Prime Minister Zeman later in the day.

Meeting with Oldrich Dedek, Vice Governor of the Czech

National Bank, and Various Bank Officials

Prague, Czech Republic; April 17, 2000

Participants: Oldrich Dedek, Vice Governor of the Czech

National Bank; Ales Capek, Executive Director of the

Monetary Department of the Czech National Bank;

Pavel Vacek, Director of the General Policy and Regulations Division of the Czech National Bank; and other

bank officials

Chairman Archer introduced the Members of the delegation and

expressed appreciation for the progress the Czech Republic has

made over the last 10 years. He asked whether the bank is confident that it can maintain its independence, noting that in the

United States there are always some in Congress who advocate

limitations on the independence of the U.S. Federal Reserve Bank.

Oldrich Dedek, Vice Governor of the Czech Central Bank, responded that the Czech government has had something of a track

record in this area, having successfully survived the currency turbulence of 1997, by introducing stability packages for the economy.

He noted further that one of the conditions of EU membership is

an independent Central Bank. Further, the International Monetary

Fund is also supportive of the Czech government’s efforts to maintain the bank’s independence.

Congresswoman Johnson mentioned U.S. concern over discriminatory treatment of U.S. exports in the Czech Republic as the

country transitions to full EU Membership. Mr. Dedek stated that,

in general, the Czech Republic has maintained a liberal and open

trading regime.

Congressman Portman stated that he hopes the Czech government will complete privatization of the banking system swiftly and

that the Czech government’s open and liberal approach to trade

will have an impact on the European Union, particularly the EU’s

Common Agricultural Policy. Ales Capek, Executive Director of the

Monetary Department of the bank, stated that he expects privatization of the banking sector to be completed within one year. Mr.

Dedek added that there is now a full political commitment by the

government to that objective, which was not true at the outset.

Now, he stated, the government realizes that it needs to attract

foreign capital and banking skills to become fully competitive.

Congressman Tanner asked whether the bank participates in

regulatory supervision, such as audits, of the commercial banks.

Pavel Vacek, Director of the General Policy and Regulations DiviVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
16

sion, stated that from its creation in 1992, the bank has established standards for Czech banks to be internationally competitive

and consistent with international standards and norms, including

EU and Basel (Bank for International Settlements) requirements.

He stated that the banks are now fully consistent with those standards. Congressman Tanner asked if the bank has broad legal authority to enforce its standards. Mr. Vacek said that it does.

Congressman Houghton recalled that officials had earlier stated

that as much as 70 percent of existing Czech companies are in loss

positions and may not recover. He asked if the bank is prepared

to take the approach, particularly with state-owned or state-invested enterprises, to allow them to go under when necessary so

that resources could be transferred to healthy and growing firms.

Mr. Dedek stated that the bank views the economy as a ‘‘two speed

economy.’’ Mr. Vacek said that the government is prepared to allow

failing firms to go out of business.

Meeting with Prime Minister Milos Zeman

Prague, Czech Republic; April 17, 2000

The delegation met with Prime Minister Milos Zeman. The Prime

Minister opened the meeting by welcoming the delegation. He

noted that the Czech Republic has made considerable economic

progress, with inflation currently at only 2 percent. The minority

government now in power, he said, is more stable than the ‘‘majority of majority governments.’’ He added that capitalism does not instantaneously correct economic problems, and he emphasized that

his government is trying to attract foreign investment, which has

more than doubled recently, with Germany and The Netherlands

as the biggest investors. The basic strategy is to attract long-term,

stable investors, not just short term investment. The government

has also eliminated tariffs in order to attract hi-tech investment.

Chairman Archer responded by stating that although there are

areas of friction between the United States and the Czech Republic,

these areas are small compared to the overall relationship. He

noted that the delegation shares the pride and exhilaration of the

Czech people since the reforms beginning in 1989. He mentioned

that he has Czech roots, as his great-great grandfather was born

in Prague. The two countries, he said, have a political and security

bond as well as the same desire for open markets, and he wants

to remove any friction between the two countries. The delegation,

the Chairman noted, is committed to free and open trade, although

not all in Congress share that commitment. He pointed to the critical votes in Congress this year concerning permanent normal

trade relations for China and whether Congress should withdraw

its approval for continued participation in the World Trade Organization. The U.S. business community, he said, should be excited

about investment in the Czech Republic because of the increase in

transparency and judicial enforcement. An open and transparent

Czech Republic, he concluded, is to the advantage of the United

States.

Congresswoman Dunn stated that as the Czech Republic moves

toward accession with the European Union, a tariff imbalance is

created because EU products enter duty free while U.S. products

17

must pay duty. She pointed to the 4.5 percent duty faced by Boeing

but not Airbus as an example. She noted that the Czech cabinet

has considered and rejected a waiver of the duty, and she urged the

Prime Minister to reconsider the decision because forcing Boeing to

pay a duty would deny it the opportunity to win a bid in a competition in which margins are so thin, but the end result would just

benefit Airbus without benefitting Czech Air.

The Prime Minister responded by saying that he is open to discussing the issue with the Trade Minister. He added that he is disappointed that Boeing does not participate in networking and marketing to sell certain military jets with its partner Aero Vodochody.

The Czech Republic needs this support, he emphasized, and Boeing

will not cooperate. The Prime Minister then noted that the government has improved judicial reform. It is a mistake to avoid lawyers

in favor of economists, he added, and a government must have a

strong enforcement and judicial system. Tax evasion, he said, is the

second biggest crime in the Czech Republic.

Congressman Portman noted that GE aircraft engines used in

Boeing aircraft are made in his district in Cincinnati, Ohio. He is

supportive of the entry of the Czech Republic into the European

Union because it could bring more openness to the European

Union, especially in the area of agriculture. He noted his appreciation of the courageous Czech efforts in Kosovo. He concluded by

saying that he supports benefits for the Czech Republic under the

U.S. Generalized System of Preferences (GSP), but he emphasized

that the GSP law requires beneficiaries to provide benefits to the

United States that are no less favorable than to other countries.

The Prime Minister responded by saying that his government

does not require visas for Americans traveling to the Czech Republic, but the United States does not extend reciprocal benefits. This

is discriminatory and should be balanced, he emphasized.

U.S. Ambassador Shattuck responded by saying that the United

States would like to eliminate the visa requirement but cannot do

so now because of exploitation by Czechs who travel to the United

States as tourists and then overstay their limit, making it impossible to move in this direction now. He then responded to the Boeing issue by saying that the government must take delivery of the

military jets in question before Boeing, a small minority investor

(only 35 percent) which does not control decisions, can market

them. Once delivery is accepted by the Czech Republic, he promised, Boeing will be active.

The Prime Minister said that his government is willing to support Boeing as well as Procter and Gamble, but Boeing’s business

interest in particular must intensify. ‘‘We hear Boeing is doing

nothing,’’ he noted. The Ambassador repeated that there is a twostep process involved, and the government must take delivery first.

The Prime Minister noted that the average Czech salary is onetenth as in the United States. It is good for both countries to support foreign investment, and the Czech Republic needs an exchange

of capital, not just goods, even aircraft. Chairman Archer responded by saying that trade involves goods, services, and intellectual property. He further noted that lawyers are not an answer to

legal problems, and a government must instead depend on impartial judges and the rule of law. One disadvantage in the United

18

States is the number of lawyers; with only 4 percent of the world’s

population, the United States has 70 percent of the lawyers.

Congressman McDermott then observed that the Czech Republic

wants more capital but still has not privatized its banking system.

He than asked how the Czech opposition agreement works. The

Prime Minister responded to the first observation by noting that

the banking sector is in fact totally privatized, with the last bank

to be privatized by the end of the year. He noted that he has reversed the declines in GDP and real wages, and inflation is now

at only 2 percent, while unemployment is below 10 percent. With

regard to the opposition agreement, he stated that it functions well

because it works to the advantage of the two parties in power. The

agreement is a result of a cold calculation by those parties to avoid

being blackmailed by the smaller parties, who want to be a part

of the governing coalition.

Congresswoman Johnson joined in congratulating the Prime Minister for the economic progress achieved by the Czech Republic. She

also raised the Boeing issue, noting that if no waiver is granted,

it would amount to a violation of the non-discrimination clause of

the GSP. If GSP benefits were to be withdrawn, many companies

would be affected. Therefore, she stated, she hopes for both shortterm and long-term solutions to the GSP problem. The Prime Minister again said that the problem is not just with regard to civil aircraft but military aircraft as well. The government needs offsets to

revitalize domestic industries, he said, and he supports privatization in areas that may not be as attractive to investors. Congresswoman Johnson responded by saying that the GSP sets the base

where offsets can occur. She reiterated her concern as to the many

products that would be affected if the Czech Republic were to lose

its GSP benefits.

The Ambassador noted that the United States is the leading investor in the poorest region of the Czech Republic. Increased investment depends on the investment climate, and the Boeing situation could unfortunately slow investment. The Prime Minister concluded the meeting by saying that the Czech Republic is working

hard to improve the business climate.

EGYPT

Country Team Briefing by Ambassador Daniel Kurtzer and

Embassy Staff

Cairo, Egypt; April 18, 2000

Participants: Ambassador Daniel Kurtzer; Reno Harnish,

Deputy Chief of Mission; Richard Brown, USAID Mission

Director; Richard LeBaron, Economic and Political Minister Counselor; Bobette Orr, Commercial Counselor;

Thomas Pomeroy, Agricultural Counselor; Marcelle

Wahba, Public Affairs Counselor; Al Bigler, Regional Security Officer; Roger Freeman, Trade Officer

Ambassador Dan Kurtzer hosted the delegation briefing. He

began by explaining that he is currently on his second tour of duty

in Egypt. He first served there in 1979. He pointed out that the

U.S. Embassy in Cairo is the largest U.S. Embassy in the world.

19

He observed that it is currently a good time in U.S.-Egyptian relations, after a rocky period over issues related to Iraq, Libya, Sudan,

economic reform, and the decline in tourism after the Luxor terrorist incident. Ambassador Kurtzer predicted that it was a good

time for the delegation to visit with President Mubarak, whom he

described as a tough interlocutor who would strongly assert Egyptian independence. Additionally, he commented that the nature of

U.S. economic and military programs in Egypt gives the United

States a ‘‘deep reach’’ into many aspects of Egyptian society.

Overall, Ambassador Kurtzer noted three key areas in U.S.-

Egyptian relations: (1) the peace process; (2) economic/trade relations; and (3) military relations.

On the peace process, he expressed the view that Syria is frustrating the effort, although it could have been anticipated that the

Syrians would reject any agreement that did not return ‘‘every

inch’’ of the Golan Heights. He explained that efforts are now shifting towards the Palestinian track. In this regard, he noted that

Egypt’s contacts with both the Palestinians and the Israelis should

be helpful. While Israel complains about the quality of its relations

with Egypt, the recent agreement on a gas pipeline between Israel

and Egypt shows that progress can be made. Ambassador Kurtzer

noted that Egypt is concerned about what will happen as Israel

withdraws from Lebanon but is especially concerned about what

might happen if its withdrawal is not complete.

Ambassador Kurtzer then commented on the status of military

relations and left economic and trade issues to be discussed by his

staff. The Ambassador observed that the bilateral military relationship is both growing and deepening. The recent visit of the Chairman of the Joint Chiefs of Staff, General Henry Shelton, and Secretary of Defense William Cohen was positive. The Ambassador estimated that the modernization of the Egyptian military is now 50

to 60 percent complete. In particular, he noted that the Egyptians

have been very cooperative in the areas of Suez transit and overflights of U.S. aircraft, both during the Gulf War and since. From

his perspective, the Ambassador explained that he sees

counterterrorism cooperation as a shining example of our bilateral

cooperation, although he believes that the current high level of security within Egypt will be difficult to maintain over the long term.

Richard Brown of the U.S. Agency for International Development

commented on U.S. foreign aid programs and expressed the belief

that they are having a significant impact on Egypt and its economic reform program. He explained the aim of U.S. foreign assistance is to help position Egypt in the global economy by increasing

trade and investment. He pointed out that over 700,000 new jobs

were created in Egypt last year. Substantial work is being accomplished, he explained, in the areas of power, telecommunications,

and waste water treatment, with the ultimate goal of relying on

sustainable human resources and a stable civil society. Mr. Brown

said that U.S. foreign aid to Egypt will be reduced by half over the

next ten years.

Richard LeBaron, Minister/Counselor of Economic and Political

Affairs, commented that the main ideology of Egypt today is maintaining stability over the long term, despite its essential conflict

with rapid economic growth. In the current environment, Mr.

20

LaBaron noted, labor unions have almost no influence, and political

parties have no significant role. The main party controls 95 percent

of the People’s Assembly, and non-governmental organizations

(NGOs) are in the formative stage. The huge Egyptian bureaucracy, he explained, is a legacy of the old socialist economy and continues to be a drag on economic improvement. In general, he observed, there is a sense that the benefits of global growth will eventually reach the poorer masses. In additionally, he commented that

the U.S. Embassy is active on religious freedom issues and maintains a dialogue with church leaders, Islamic clerics, and non-governmental organizations.

Bobette Orr, representing the U.S. Foreign & Commercial Service in the U.S. Embassy, added that Egypt is the second largest

market in the Middle East for U.S. products, after Saudi Arabia.

U.S. exports currently total in the $3 billion range, with imports

from Egypt equaling around $650 million. In 1998, 12 percent of

U.S. investment in the Middle East was in Egypt, with the oil sector accounting for $576 million and about $543 million for everything else. Ms. Orr noted that the challenges faced by U.S. firms

in the Egyptian market include complicated import procedures and

precipitously announced decrees. She indicated that her role is one

both of advocacy for U.S. companies with the government and helping them to enter the local market. Ambassador Kurtzer interjected

that it was a constant challenge to maintain a level playing field

for U.S. companies in Egypt and that he sought to assist through

his access to ministerial level officials.

Thomas Pomeroy, representing the U.S. Department of Agri- culture, stated that agricultural exports to Egypt were $1 billion

per year and that Egypt is the largest export market for U.S.

wheat in the world. He noted that the United States has experienced 48 percent growth in the export of processed consumer foods.

Mr. Pomeroy explained that he helps to train local officials to handle agricultural issues and believes the processed food sector holds

great potential for U.S. exporters.

Marcelle Wahba, Public Affairs Officer, indicated that he is also

on his second tour in Egypt, having first served in Egypt eleven

years ago. He noted that there has been significant change in the

economic and political climate in Egypt, which can be seen in the

belief held by many Egyptians that they have turned the corner

economically but are still being constrained by the overriding concern on security. Mr. Wahba expressed the belief that the government does give a lot of attention to public opinion, despite the

shortcomings of the Egyptian political system. He listed a number

of Embassy programs that are helping in this regard: (1) providing

assistance to NGOs; (2) English language programs; (3) international visitor programs; and (4) grants for ‘‘people-to-people’’ programs.

Al Bigler, Regional Security Officer from the Diplomatic Security

Service, commented that he represents the largest single office in

the largest U.S. Embassy. The main goal of the office is shutting

down Egypt as a transit point for terrorism. He indicated that the

terrorist threat is high both from internal elements in Upper Egypt

and from external elements of Islamic Jihad origin. Mr. Bigler said

that he has seen ‘‘a 100 percent improvement’’ in counterterrorism

21

cooperation in the last three years. Three years ago there were

weekly attacks on police in Upper Egypt. Today, there are none.

Ambassador Kurtzer interjected that the threat of internal violence

used to be nationwide, but is now mainly confined to four provinces

in one region, having been successfully pushed out of the major cities and population centers. The Ambassador noted that the United

States has given over $3 million for police training, emphasizing a

shift in focus to community policing. He indicated that a number

of Egyptian police officials have received training in the United

States.

Roger Freeman, Trade Officer from the U.S. Embassy and Control Officer for the delegation’s visit, commented on his personal

focus on trade. He indicated that Egypt currently faces an overall

$11 billion trade deficit, with $5 billion in exports and $16 billion

in imports, that causes significant foreign exchange problems. Average Egyptian tariffs on imports are 20 percent, he pointed out,

and the United States faces problems in the areas of customs valuations, import bans, and product standards. With regard to intellectual property rights protection, progress is being made, but a new

Egyptian law is needed in this area. Commerce Secretary Daley

signed a Trade and Investment Framework Agreement in June

1999. With regard to a possible free trade agreement (FTA) between the United States and Egypt, he indicated that a large number of practical steps by Egypt was needed prior to the negotiation

of an FTA, particularly in the area of customs valuation and tariff

structure.

Following this presentation by Ambassador Kurtzer and U.S.

Embassy staff, the delegation raised a number of specific issues.

Congressman McDermott asked about relations between the Islamic world and the Chinese. The Ambassador said that part of the

attraction of China is its large market and that China has been a

traditional supporter of Arab causes. As such, Chinese leaders have

always been welcome in Egypt. Overall, however, the Ambassador

indicated that he does not believe that the Chinese have a special

relationship in Egypt and hold minimal influence.

Congressman Portman asked about the status of the Middle East

peace process. The Ambassador commented that two factors have

dominated Egypt for the last fifteen years: (1) the continuing aftermath of its revolution; and (2) its relations with Israel. He indicated that there is a pervasive belief that real growth and the ability of Egypt to reach its full potential can come only with full regional peace. He noted that intraregional trade is extremely low.

Congresswoman Dunn asked about the role of high tech companies in Egypt. The Ambassador said that the new Minister of Communications and Information Technology is working hard to get

President Mubarak to focus on high tech issues. He noted that all

of the major U.S. high tech companies have a presence in Egypt,

and many contracts were signed during Mubarak’s recent U.S.

visit, including one with IBM to train 15,000 workers over the next

five years. Richard Brown added that the Embassy has targeted

three specific areas for export growth: (1) agribusiness, (2) tourism,

and (3) information technology.

At this point, the Ambassador left for an appointment and

turned over the discussion to his staff. Congressman Tanner comVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
22

mented on the issue of internal politics in Egypt and specifically on

the positive role that President Mubarak played in the Gulf War.

He asked what direction Egypt would head toward after President

Mubarak left office. Richard LeBaron commented that it was most

likely that he would be replaced by someone like him from the senior levels of the government and that the issue of succession was

complicated by all of Egypt’s problems. Mr. LeBaron expressed the

belief that Egypt is moving toward a time where a civilian successor may be possible.

Congressman English raised the issue of Egypt’s agenda in the

World Trade Organization (WTO). The Embassy Staff replied that

Egypt shares a common agenda with the United States in the WTO

on market access and is very interested in the WTO’s agenda on

agriculture and basic services, seeing the possibility for opening a

$1 billion market in the European Union for its agricultural products.

Congresswoman Johnson raised questions about Egypt’s readiness for an FTA and also asked about women’s rights in Egypt.

Roger Freeman said that Egypt faces real tensions between its aspirations for an FTA and its own economic and political realities.

Egypt, he noted, has been negotiating an Association Agreement

with the European Union for ten years, and, while Europe is ready

to make progress, Egypt is not ready to open up its markets. With

regard to women’s issues, the Embassy Staff pointed to a new divorce law, which will benefit those women who can afford to take

advantage of it, and the remarkable progress in the education of

women with 80 percent of Egyptian women now attending school.

Congressman Houghton asked for the advice of the Embassy

staff on the delegation’s agenda for the day. The Embassy staff

jointly offered a number of points. Richard Brown commented that

the focus should be on how to bring Egypt into the world economy

with the major subgoals of creating jobs while sustaining and preserving national resources. More specifically, it is important to liberalize the Egyptian trade regime so that Egyptian companies,

which have been protected by the tariff regime for many years, can

become globally competitive and the Egyptian bureaucracy can be

made less onerous. Mr. Brown cited the fact that Egypt and the

Port of Baltimore handle roughly the same amount of trade volume. Baltimore handles this trade flow with 200 customs agents

while Egypt has 7,000. A bright spot for Egypt, he indicated, is

that it does have a favorable balance of trade in services.

Roger Freeman suggested there are important issues to be raised

in each of the day’s appointments. He suggested the overall theme

of the delegation should be the possibility of an FTA and the steps

Egypt could take to move in that direction. More specifically, Mr.

Freeman said the delegation should press for a new Egyptian IPR

law, continued Egyptian participation in pushing the peace process

forward, cooperation on issues in the WTO, resolution of bilateral

issues, and the streamlining and development of a coherent protrade structure within Egypt.

Congressman McDermott questioned Egypt’s interest in the WTO

and Egypt’s main interests in any new trade round. The Embassy

staff commented that there had been a change of Trade Ministers

in October and that the former Minister was not active in this

23

area. Currently, Egypt’s main interest is in implementing already

existing agreements, but there is also a big interest in agriculture

and in select areas of the service sector.

Congressman Tanner ended the discussion by raising the problems faced in Egypt by both Coca Cola and U.S. pharmaceutical

firms. The Embassy staff commented that negotiations to date on

the discriminatory tax issue faced by Coca Cola have been unsatisfactory. With regard to pharmaceuticals, the Embassy staff expressed the view that Egypt has an entrenched state industry that

will frustrate progress toward stronger IPR protection in that industry.

Meeting with President Hosni Mubarak

Cairo, Egypt; April 18, 2000

The delegation met with President Mubarak. Chairman Archer

complimented the President for his longstanding role as peacemaker in the region. After describing the role of the Ways and

Means Committee in the U.S. Congress, he noted the common desire of the United States and Egypt to see a new WTO round, in

which the developing nations would play a significant role. He also

recognized the common goals of Egypt and the United States for

the round. ‘‘We have common understandings,’’ he said, ‘‘not frictions.’’

Congressman Houghton asked the President how the United

States can help increase Egyptian exports. The President responded by saying that he is appreciative of the good relations between the United States and Egypt, noting that he has raised the

possibility of negotiating a free trade area (FTA) with the United

States, even with President Clinton. Such an agreement, he said,

would give Egypt more room to export U.S. goods. He stated that

the main Egyptian export to the United States is textiles, which,

he said, are somehow viewed as a threat by the United States, and

he wondered how that could be given the small volume of Egyptian

textile exports. Congressman Portman responded by saying that

the Trade Investment Framework Agreement (TIFA) is a good first

step towards negotiating an FTA. He noted that the textile interests in the United States are very strong not because of economic

impact but because of politics. The President responded that the

best solution would be for the textile interests to get together and

negotiate because Egyptian textile exports are such a small percentage of U.S. trade.

Congresswoman Johnson congratulated the President on his

leadership in women’s education efforts. The President noted that

women have had equal rights since 1919, and there are no restrictions on education for women. Congresswoman Johnson noted that

the new divorce law is a step in the right direction. She also said

that she is interested in the possibility of an FTA, and she mentioned the need for intellectual property protection to attract hitech investment. The President promised that intellectual property

rights will improve.

Congressman McDermott spoke next, noting that peace was

needed to have trade. Recognizing the President’s role as brokering

peace in the region, he asked what the United States should do to

24

stabilize the region. The President answered that he is working

hard to achieve stability, but big problems remain. The foremost

need is to contain Palestine and to give the Palestinians some satisfaction in order to ‘‘remove the hate.’’ This issue, he said, could

explode at any time. Chairman Archer asked if the Palestinian

issue can be resolved without resolving the Jerusalem question.

The President responded that the Jerusalem question is ‘‘smoldering.’’ Showing the delegation a map of the region, he said that

his solution is to provide access to the holy places, marking them

with an international flag, but the Israeli government has rejected

that solution.

Congresswoman Dunn then invited the President to visit Seattle,

which has a large hi-tech industry. She asked the President about

his recent visit to Washington, D.C. The President responded that

he had a good visit, in which he met with President Clinton, Vice

President Gore, Secretary of State Albright, Secretary of Defense

Cohen, Congressional leaders, and business representatives.

Congressman English then complimented the President on his

trade leadership, especially in restarting the WTO, noting that the

WTO must offer something to the developing world. The President

agreed, emphasizing that if trade is free, goods are cheaper, which

in turn creates more trade. Otherwise factories close, creating unemployment and reducing the opportunity for the developing world

to import from the United States. He told the delegation that the

developed world should not prevent developing countries from producing certain goods more cheaply because free trade provides

them the chance to then purchase U.S. goods.

Congressman Tanner then asked the President for his views on

Iraq.

Chairman Archer asked the President for his view on Iran. Iran

is becoming more moderate, the President said. He emphasized

strongly that he would ‘‘open’’ with Iran, but only on the condition

that former President Sadat’s murderer is punished. Relations are

improving, and he urged the United States to make contact with

Iran, as Egypt does. Chairman Archer responded that the United

States has taken a modest step in removing the embargo on pistachios and other products from Iran. The President offered that

the United States should not be upset by Hussein’s ‘‘tough statements’’ and should instead ignore them.

Congresswoman Johnson asked about the Israel/Syria peace

process. The President responded that the problem is in dividing

the land, noting that Syria will never concede the land to Israel to

control the border. He stated, however, that the land issue should

not be of such great importance. Using a map as a guide, he pointed to the difference of only ten meters between the 1967 border and

the current border, but Israel wants 500 meters. Because Syria

must ‘‘save face,’’ the 1967 border should be used, and the rest of

the area should be free. The real problem, he noted, is that Syria

wants a better agreement than the Israel/Egypt agreement.

Chairman Archer concluded the meeting by telling the President

that with his leadership, he is confident that all of these issues will

be resolved.

25

Meeting with Dr. Ahmad Fathy Serour, Speaker of the People’s Assembly

Cairo, Egypt; April 18, 2000

Ambassador Kurtzer opened the meeting by introducing the

Members of the delegation and explaining the jurisdiction and role

of the Ways and Means Committee in the U.S. Congress.

Speaker Serour stated that he had visited the U.S. Congress

twice and explained that the Egyptian system is different. In the

United States, he noted, there is a separation of powers between

the legislative and executive branches of government. In Egypt, the

People’s Assembly is semi-parliamentary and semi-Presidential.

The ruling party, the National Democratic Party, to which President Mubarak belongs, enjoys a 90 percent majority in the People’s

Assembly.

Speaker Serour informed the delegation that the People’s Assembly is now in the process of studying the government’s budget. In

general, the members of the People’s Assembly are more open to

supporting the requests of the current cabinet than the one in

place last year. The Speaker indicated that he expects the People’s

Assembly to consider some economic bills as well before adjourning

for parliamentary elections later this year. He pointed out that the

United States and Egypt are following up on bilateral trade issues

in the Trade Council under the Trade and Investment Framework

Agreement and the importance of this dialogue.

Speaker Serour asked Chairman Archer about his thoughts on

the correction underway in the U.S. stock market. Chairman Archer responded by noting that the correction is long overdue. Alan

Greenspan, Chairman of the Federal Reserve, has warned that the

market is too high. Chairman Archer observed that the market rebounded the previous day and that the fundamental indicators in

the U.S. market remain sound. There are normal ‘‘ups and downs’’

in a free market economy.

Congressman Houghton commented that all of the economic forecasts have ‘‘materialized.’’ The United States is going through a

transition to a high-tech service economy. No one knows how to

value the stocks in this sector.

Chairman Archer asked the Speaker about his views on the Middle East peace process. He replied by saying that he supports this

process, which will have advantages for the entire region. Speaker

Serour noted that there are two steps involved in the peace process. First, the withdrawal of Israel from Lebanon and second, the

issue involving Syria and the Golan Heights. Speaker Serour observed that the issue with Syria will be more difficult to resolve.

He noted that a Palestinian state was called for in 1947, and if one

is declared it will affect demographics in the region by the resettlement of Palestinian refugees now living in Lebanon. Overall, peace

will be good for the region. The King of Jordan supports the process. The Israeli people must also be convinced of the benefits of the

peace process.

Congressman McDermott asked the Speaker to explain how differences of opinion are managed within the Egyptian political system. Speaker Serour replied that before 1952 Egypt was ruled by

the party supported by wealthy Egyptians. After 1952, President

26

Nassar coordinated a grassroots effort among the people to build a

common consensus about the future. At that time, he said, the

United States did not support President Nassar, which led him to

develop close relations with the Soviet Union, contrary to the inclination of the Egyptian people. In 1980, he added, Egypt legalized

opposition parties, but they remain weak and do not hold key positions in the government. Islamic extremists have aligned themselves with the Labor Party on the left while a nationalist party

exists on the right. The Speaker noted that these parties try to

build support from a philosophy based simply on destroying the

government rather than promoting good ideas.

Congressman McDermott followed up by asking how the government prevents a revolution by Islamic fundamentalists. Speaker

Serour replied by saying that the government has arrested people

who advocate the violent overthrow of the government and has

tried to help people differentiate between extremist groups like

Muslim Brothers and the real meaning of Islam. Speaker Serour

went on to say that he tries to give opposition parties an opportunity to voice their views and noted that the National Democratic

Party succeeds because it is neither on the right or the left of the

political spectrum.

Chairman Archer stated that the delegation learned a lot about

Egypt in a short time, particularly Egypt’s interest in attracting

more foreign investment. He went on to say that there are many

Americans who would like to invest in Egypt but cannot because

barriers still exist in the areas of customs valuation, intellectual

property rights protection, and market security. Chairman Archer

asked Speaker Serour about the role that the People’s Assembly

plays in trying to address these issues.

The Speaker noted that the People’s Assembly is awaiting the

transmission of a new intellectual property law and that Egypt will

comply with its obligations under the WTO customs valuation

agreement on the schedule that has been established for developing

countries. The government is also preparing a law that will address

the market security concerns of investors.

Congresswoman Dunn explained the high-tech specialization of

her constituents and asked the Speaker about the process under

which the new intellectual property rights law will be considered.

Speaker Serour noted the legislative differences between the

United States and Egyptian processes and observed that the executive is not separate from the legislature as it is in the United

States. Once a bill is proposed by the executive, it is usually enacted by the People’s Assembly.

Congressman Portman asked Speaker Serour about his views on

the possible free trade agreement (FTA) between the United States

and Egypt. The Speaker replied that an FTA with the United

States enjoys broad support in Egypt. He noted that the United

States is considering negotiations with other trading partners and

that the Egyptians hope that the United States will consider one

with Egypt as well.

Chairman Archer thanked the Speaker for his time and for his

willingness to exchange views with the delegation.

27

Meeting with Minister of Foreign Affairs Amre Mahmoud

Moussa

Cairo, Egypt; April 18, 2000

Foreign Minister Moussa welcomed the delegation and the opportunity to discuss a variety of issues of concern to the United States

and Egypt, including the Middle East peace process.

Chairman Archer explained that the delegation had met with

President Mubarak earlier but did not have an opportunity to discuss the problems in Sudan. He asked the Foreign Minister to

share his views with the delegation.

Foreign Minister Moussa replied that the problems in Sudan are

of great concern to Egypt, but they are extremely complicated with

many different dimensions that affect the future of the region.

Sudan, he explained, is an African-Arab country with both Moslems and Christians. Sudan has suffered continuous conflict between the north and the south, but the Sudanese also have conflicts within each region. No one person in Sudan, he noted, can

say that he speaks for the north and no one person can speak for

the south. Minister Moussa informed the delegation that Egypt

began discussions with the Sudanese on all sides a few years ago

on the premise that the war must stop and that a dialogue must

begin in order to guarantee a future for the Sudanese people. He

emphasized that the Egyptian government has urged all of the various leaders to meet and to chart a common future for Sudan and

has offered to help in this process.

The Foreign Minister explained that he spoke to Ambassador

Thomas R. Pickering, Under Secretary of State for Political Affairs,

last summer and to Assistant Secretary of State for Africa Susan

Rice in October about the problems in Sudan. Also in October, he

raised the issue with Secretary Albright, and they made progress

in developing a common policy toward Sudan. The Foreign Minister

noted that if the goal is a unified Sudan, the government in Khartoum must offer something to all of the Sudanese people, including

basic human rights.

In December 1999, Minister Moussa said the leader of the extremists in Sudan was marginalized in favor of the establishment.

He explained that the Sudanese government has said that it will

move away from extremism. Time will show what course is followed. He noted that the opposition has demanded a new constitution based on respect for all of Sudan’s minorities. The Egyptian

government, he stated, has renewed the call for a meeting to negotiate a solution and is seeking to form a coalition within Sudan interested in building a new future in peace. In this process, the Foreign Minister noted that the Egyptian government remains in constant communication with the United States and the French government. He expressed hope that a meeting of the various faction

leaders will occur in the next few months. In order to succeed, however, it will be critical for everyone to put the past aside and to

focus on the future.

Congresswoman Johnson inquired about the Foreign Minister’s

views on Saddam Hussein and the effort to keep him from developing weapons of mass destruction. Minister Moussa noted that

policy toward Iraq is also a matter of concern to Egypt. The quesVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
28

tion is what happens after the Middle East peace process is complete. Once there is peace between the Arabs and Israel, he stated,

people will focus more on other problems in the region.

Minister Moussa pointed out that there has been a shift in views

in the Arab world toward the sanctions against Iraq, which have

been in place for nearly 10 years. The weapons inspections were

successful up to a certain point, he noted, but now only the people

of Iraq are suffering. The Foreign Minister explained that the mood

in the Arab world is that Saddam Hussein’s rearmament must be

prevented, but there is an awareness that he does not currently

pose a threat to his neighbors. He indicated that the Arab world

is satisfied with the shift in UN Security Council positions which

will lead to a lifting of the sanctions under certain conditions, but

he noted that it is clear that Saddam Hussein’s regime is immune

from the pain of sanctions. The Foreign Minister stressed the need

for a solution which will not subject the Iraqi people to suffering

permanently. This, he believes, will only frustrate and alienate an

entire generation.

Congressman McDermott noted that the Foreign Minister had

previously served as Ambassador to India and asked him to share

his views on the conflict between India and Pakistan. Minister

Moussa responded by saying that the Chief Executive of Pakistan

had just concluded an official visit to Egypt. The relationship between India and Pakistan, he observed, is not solely a bilateral

problem but has a large Chinese influence. In his view, India sees

China as its major challenge to being a superpower in the world.

Pakistan, he noted, becomes increasingly more concerned that

India is trying to impose hegemony in the region and has developed

nuclear weapons to give it a sense of security. The Foreign Minister believes that there is a complete lack of confidence between

the Indians and Pakistanis ‘‘that makes the Arab-Israeli conflict

pale in comparison.’’ Each side is diametrically opposed to what the

other wants. At present, he explained, the Egyptian government is

trying to seek a dialogue rather than an outright solution to the

problem.

Congressman Houghton noted that there are many positive aspects to the U.S.-Egyptian relationship and asked the Foreign Minister if there is any single bilateral issue of concern to Egypt. Minister Moussa explained that Egypt views relations with the United

States as a top priority. He observed that there are strong militaryto-military contacts between the United States and Egypt and that

U.S. foreign assistance has been instrumental in Egypt’s success.

The Foreign Minister said that the Egyptian government is aware

that U.S. foreign aid will end over time and would like to prepare

for that by negotiating a free trade agreement. He noted that the

$2 billion in annual U.S. foreign assistance to Egypt has produced

a $3 billion trade surplus for the United States. ‘‘Now the relationship needs to move from aid to trade,’’ he stated. Minister Moussa

indicated that one obstacle to closer bilateral relations is that the

United States always insists that Israel be included in every aspect. The United States, he said, needs to disassociate Israel from

issues when appropriate. In his view, Israel does not belong in

every discussion between the United States and Egypt. ‘‘We need

29

a strong bilateral relationship that can stand on its own,’’ he stated.

Congressman Portman asked the Foreign Minister about his

views on the gas pipeline which will send Egyptian natural gas to

Israel. The Foreign Minister noted that foreign companies have

contributed to the project and that this is not a government-to-government issue. He indicated that the Egyptian government does

not intend to oppose it and that the obstacles have been on the

Israeli side.

Chairman Archer thanked the Foreign Minister for his time and

for sharing his views with the delegation.

Lunch meeting with the American Chamber of Commerce in

Egypt

Cairo, Egypt; April 18, 2000

Mohammed Ozalp, Vice President of the AmCham and Head of

the Misr International Bank, introduced and welcomed Chairman

Archer and the delegation on behalf of the AmCham.

Chairman Archer opened by reaffirming the strong bonds of

friendship between the United States and Egypt in political, cultural, and economic terms. He added that coming to Egypt was the

fulfillment of a childhood dream for him.

Chairman Archer then explained the key responsibilities of the

Committee on Ways and Means: raising revenue, social security,

medicare, social welfare programs, and complete jurisdiction over

foreign trade. He added that in the coming months, Congress

would be considering key legislative issues on the trade agenda:

the value of the continued participation of the United States in the

WTO (in the form of a resolution relating to Congress’ continued

approval of the WTO agreements), whether to accord permanent

normal trade relations to China, and passage of legislation granting key preferential trade benefits to Africa and extending additional benefits to Caribbean Basin Initiative countries. Chairman

Archer expressed his hope that the Africa bill would pass in a relatively short period of time. He emphasized that Egypt should

watch this legislation closely both for what it might foretell about

legislative prospects and challenges for an eventual U.S.-Egypt free

trade agreement and because it provides an indication of the difficulty of passing trade legislation in the U.S. Congress at this

time.

Chairman Archer added that Egypt and the United States agree

on many issues with respect to international trade, such as the importance of commencing a comprehensive round of trade negotiations in the World Trade Organization. He concluded by pointing

out that all countries that have reduced protectionist policies have

increased the standard of living of their people, while countries

that increase protection have reduced the standard of living of

their people.

Mr. Jayant Ganatra then posed several questions to Chairman

Archer on behalf of the AmCham. The first question was what single step could Egypt take to continue to attract the information

technology industry to Egypt. Chairman Archer responded that

Egypt needed to take the necessary steps to create a friendly enviVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
30

ronment for the industry. He mentioned certainty for investors, improving Egypt’s customs regime, improving Egypt’s financial services commitments to the WTO, and dealing with other anomalies

in Egypt’s trade regime such as reducing or eliminating the soft

drink tax on Coca-Cola and Pepsi.

Mr. Ganatra then posed a question related to the value of the

WTO to developing countries and the question of labor and environmental issues and trade. Chairman Archer responded that labor

and environmental issues are legitimate concerns, but these concerns should be addressed outside the WTO. He added that it is

important to expand trade ‘‘for trade’s sake’’ and noted that multinational corporations would, if given the opportunity, come to developing countries and create jobs for local populations. He added

that foreign investment should be seen as a positive element in an

economy. Chairman Archer pointed out that the United States is

the world’s largest borrower nation, and U.S. borrowing has

strengthened economic growth, productivity and employment.

The next question concerned whether Chairman Archer believed

the NASDAQ would return to its previous level quickly. He responded that he had learned long ago not to predict the course of

the stock market. He added that he did not believe the sell-off per

se should be a cause for concern because it is not ‘‘real life’’ anyway

if a company’s stock valuation rises from $5 per share to $100 per

share in only a year’s time. He added that it is important to keep

things in perspective, recalling that the market was substantially

higher today than it was a year ago.

The final question concerned what legislation he hoped would

pass before his term as Chairman ended at the end of the year.

Chairman Archer responded that he would like to save Social Security for all time, institute health care reform for the next 50 years,

and enact structural tax reform to make the system work more effectively for the American people. He stated that with the White

House opposed to his proposals in each of these areas, it is unlikely

that these reforms would be made, but he expressed his hope that

they would be made in the future.

Meeting with Minister of Economy and Foreign Trade

Youssef Boutros Ghali

Cairo, Egypt; April 18, 2000

Chairman Archer met privately with the Minister before the delegation meeting, discussing the potential for a Free Trade Agreement (FTA) between the United States and Egypt as well as prospects for a new WTO round.

During the delegation meeting, Congresswoman Johnson noted

that there are a number of obstacles to developing business in

Egypt, making it harder to attract foreign investment. She stated

her hope that the new intellectual property law is passed by the

parliament soon and that customs problems are corrected. The

Minister responded that Egypt is setting up institutions to tackle

these problems. The average tariff is down to 15 percent, with the

maximum rate between 40 and 45 percent. Hi-tech is being addressed and promoted. Egypt has tackled the big problems, he said,

and there are only little problems left. Fundamentally, Egypt has

31

a deep-seated belief that the market economy is the ‘‘way to go’’ because free trade provides the framework of deadlines to accomplish

goals. Egypt needs to set up an institutional infrastructure to take

the small steps to make an FTA easier to accomplish, and Egypt’s

desire to initiate a dialogue with the United States provides this

framework. Although Egypt values strongly its strategic relationship with the United States, the European Union is ‘‘way ahead’’

because it has already negotiated an FTA with Egypt. Egypt, the

Minister said, is now reluctant to sign the agreement because the

EU concept of free trade is different. If Egypt enters into an FTA

with the European Union, he warned, the United States will lose

the Egyptian market because it cannot compete. The Minister emphasized that Egypt does not have the same type of strategic relationship with the European Union as it does with the United

States, implying that the United States could quickly make

progress on an FTA if it so desired. The Minister continued that

the United States and Egypt must initiate a dialogue before there

can be compromise and a successful negotiation.

The Minister also stated that a new intellectual property law

consistent with the WTO Agreement on Trade-Related Intellectual

Property (TRIPs) will be submitted to Parliament in December or

January, although this is a short parliamentary year because of

elections. The law will contain a patent mailbox, patent exclusivity,

and market exclusivity, the key elements identified by the U.S.

Trade Representative. He also pointed to improvements in customs

and customs valuation. He concluded by saying that as believers in

free trade, Egyptians do not need the ‘‘carrot’’ of an FTA to make

improvements. However, an FTA would provide a better framework

instead of a piecemeal approach.

Congressman McDermott then asked the Minister to explain the

appropriate way to deal with labor and environment issues in the

WTO. The Minister responded that these issues will not go away,

but they, particularly labor, have no place in trade negotiations. Although environmental issues are closer to trade as are issues relating to genetically modified organisms, labor ‘‘has nothing to do with

trade and vitiates the trading process.’’ He emphasized that Egypt

is against child labor and prison labor and similar issues, but societal issues are more subtle than trade matters. The International

Labor Organization is the more appropriate forum in which to negotiate agreements on labor. ‘‘Hand waving’’ is acceptable, the Minister said, but ‘‘nothing of substance’’ should be included in the

WTO agreements. The issue is one of perception, he added, because

the developing world does not trust the developed world, seeing the

labor discussion as a ‘‘back door’’ to trade sanctions. Labor issues

can be subtle, he noted, citing the example of a case in which a

child works in a developing country in order to save his family

from starvation. ‘‘Whose definition of civil society would we use,’’ he

asked, wondering if his example would be taken into account.

Congressman McDermott agreed that while labor is further away

from trade, it cannot be rejected. Congressman McDermott added

that environmental issues can be used as trade barriers and then

he asked the Minister whether the European Union’s precautionary

principle was acceptable to Egypt. The Minister responded that he

does not know how the European Union would use it because there

32

are no objective criteria. ‘‘We can’t have secret societies,’’ he noted,

citing the need for transparency. Those who seek to link trade with

the environment should develop objective criteria, he concluded.

The Minister then spoke about the structure of the WTO, noting

that it is the only organization with a one-country/one-vote structure, which should be preserved. However, the WTO cannot ‘‘negotiate each comma,’’ so members should rethink and stratify the negotiation process, he said. The current process is not viable, and

until it is fixed, there cannot be a new round.

Congressman Portman noted his frustration with the EU’s agricultural policy. He agreed with the Minister that the WTO must

be restructured and he suggested that the new round be set to deal

with the shortcomings of the WTO, including transparency and dispute settlement. He encouraged Egypt to take the lead in this regard.

The Minister concluded the meeting by noting that Tunisia, Morocco, Jordan, and Egypt are discussing a free trade agreement,

with the next meeting set for mid-May or early June.

Briefing by Robert K. Vincent, Jr, Director, Egyptian Antiquities Project Direct, American Research Center in

Egypt

Luxor, Egypt; April 19, 2000

Under a U.S. federal grant provided by the U.S. Agency for

International Development (USAID), the American Research Center in Egypt (ARCE) carries out Egyptian antiquities preservation

and restoration projects in Upper Egypt (Attachment C). Robert

‘‘Chip’’ Vincent provided the delegation with a briefing on ARCE’s

work in the vicinity of Luxor, Egypt, particularly with respect to

the Tomb of Sety I in the Valley of the Kings and the Temple of

Luxor. The delegation also visited sites to observe the type of work

being conducted by ARCE under the USAID grant. Mr. Vincent explained that the most severe threat to the antiquities in the region

remains flash flooding. To mitigate this threat, he said, ARCE has

developed a series of recommendations, which it has presented to

the Egyptian Supreme Council of Antiquities, on flood protection

measures. In the tomb of Sety I, he added, ARCE has conducted

a thorough study of the tomb’s present condition to evaluate its

structural stability and the conservation needs of the wall paintings and to propose a suitable site presentation plan. At the Temple of Luxor, Mr. Vincent pointed out that ARCE is conducting a

conservation project on certain stone fragments which were underground and have been exposed to the ground water table.

MOROCCO

Country Team Briefing with Ambassador Edward Gabriel

and Embassy Staff

Rabat, Morocco; April 21, 2000

Ambassador Edward M. Gabriel opened the briefing by welcoming the delegation and providing the historical context for the

U.S.-Morocco relationship. He recalled that King Hassan II had

been a good friend of the United States and that his son, King MoVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
33

hammed VI, has continued that tradition since he assumed the

throne upon the death of his father in July 1999. This friendship

has deep historical roots as Morocco was the first country to recognize the U.S. flag in 1777. Ambassador Gabriel stated that the bilateral relationship is enjoying a ‘‘renaissance,’’ and that King Hassan had noted before his death that ‘‘not since the days of Kennedy

has the [U.S.-Morocco] relationship been so good.’’

In this context, Ambassador Gabriel stated that visits by Congressional delegations and other official visits are crucial to reinforce and advance the relationship. He noted that such visits are

important not only for the bilateral relationship but also to advance

U.S. regional diplomacy, in particular the North African strategic

element and Morocco in relation to sub-Saharan Africa.

Ambassador Gabriel then turned to the economic dimensions of

the relationship, stating that 50 percent of Morocco’s government

budget is spent on public sector wages and entitlements, while 33

percent is spent on debt service, leaving very little discretionary

spending for infrastructure investment and social improvement

programs. As a consequence, Morocco is heavily dependent on the

private sector and private sector investment. He stated that the

debt overhang is the result of policies pursued from the mid–1950s

through the 1980s.

On the positive side, Morocco’s current policies leave it in a good

position to invest more strongly if the debt burden can be eased.

He indicated that there are two particular initiatives in this area

that the United States should consider. The first is debt-equity

swaps, an approach that a number of European countries, including Austria, France, Italy, and Spain, are using. Under this approach, debt relief is provided in exchange for private sector investment in Morocco. The European Union’s pursuit of this approach

has been good for Morocco, but harmful for the United States, because EU companies can obtain price advantages of as much as 5–

6 percent over U.S. companies by participating in these swaps. A

second approach worth exploring is providing debt relief in exchange for Morocco’s adoption of U.S. policies in areas like trade.

Ambassador Gabriel then explained that King Hassan II has instituted a modernization program for Morocco that he described as

a ‘‘three-legged stool.’’ The first leg involves a political experiment,

which Ambassador Gabriel termed successful so far. In this area,

King Hassan invited Prime Minister Abderrahmane Youssoufi, a

former political dissident, to form a government in 1998 and to permit greater democracy and attention to human rights issues.

The second leg involves macroeconomic reform. In this area, Morocco’s track record has been good with inflation under one percent

and the budget deficit under three percent.

It is the third leg of the stool, social development, which presents

Morocco with its greatest challenge. In key areas such as infant

mortality, maternal mortality, the gap between rich and poor, and

access to infrastructure, substantial improvements are needed.

Even in these areas, however, Ambassador Gabriel emphasized

that King Mohammed VI has been working to address these issues,

in line with U.S. policies, more strongly than past leadership.

Richard Johnson, Counselor for Economic Affairs at the U.S. Embassy, then offered a more detailed briefing on macroeconomic

34

issues. He termed Morocco a ‘‘middle-income country,’’ with per

capita GDP at approximately $1,300. He echoed Ambassador Gabriel’s comments that Morocco had followed the wrong policies in

the decades following independence, from the 1950s to the early

1980s. In the first wave of economic reform in the mid–1980s, Morocco reduced its budget deficits and tariffs to promote competition,

and its growth through most of the 1990s has averaged approximately three percent.

Mr. Johnson said that Morocco is now in need of a second wave

of economic reform. He indicated that its targets should include

doubling growth to approximately six percent and strengthening

the social safety net. To accomplish this goal, the United States has

urged Morocco to take four steps: (1) restructure the government

budget away from entitlements and wages toward infrastructure

and social investment; (2) promote greater transparency, rule of

law and anti-corruption efforts; (3) continue trade and tariff liberalization; and (4) improve literacy with educational investment and

reform (the general illiteracy rate is estimated to be 50 percent,

with illiteracy among women in rural areas at 90 percent). In the

last area, he stated, a key reform is to focus strategies and investment on primary and secondary schooling rather than on post-secondary education.

Mr. Johnson noted further that due to the drought which Morocco has experienced over the last two years, the country’s GDP

growth was reduced to zero in 1999 and is likely to remain at that

level for 2000. On the positive side, Mr. Johnson stated that Morocco enjoys good relations in the Arab world, including among the

Gulf States, several of which have taken steps to ease Morocco’s

debt burden.

In closing, Mr. Johnson stated that the United States needs to

provide ‘‘deliverables’’ to Morocco to encourage it to continue to

pursue the right set of policies. Two of those deliverables are debt

relief and food aid (due to the drought). In regard to U.S. aid, the

country budget is $10 million, a small figure but one the Embassy

is working to push as far as it can. Examples of projects the United

States is supporting with foreign aid are: (1) a project to simplify

and improve the investment climate for U.S. companies; and (2) a

project to promote adherence to the rule of law by strengthening

the judicial system and transparency.

Chairman Archer asked what kind of debt relief efforts Mr. Johnson suggests that the United States participate in. Mr. Johnson replied that there are bilateral efforts such as those undertaken by

the Gulf States. In addition, there are steps that could be taken

through the Paris Club, which has provided the framework for the

debt-equity swaps noted earlier.

Congressman Portman asked Mr. Johnson for specific examples

where European countries have used debt-equity swaps to gain an

advantage for local producers. Mr. Johnson replied that the issue

has been raised in a utility privatization project involving Enron

and EMS Energy.

Congressman Portman asked if Mr. Johnson could clarify how

the debt-equity swaps work. Mr. Johnson explained that a European company obtains the approval of the Moroccan government to

pursue the approach in the context of a specific commercial transVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
35

action. The company then approaches a European government,

which ‘‘auctions’’ a portion of the country’s debt. Mr. Johnson stated, however, that the ‘‘auction’’ usually amounts to a ‘‘sweetheart

deal’’ whereby the company is able to buy the debt at approximately 50 percent of its value and sell it to the foreign government

in local currency at approximately 56–60 percent of its value. Mr.

Johnson added that with a lack of transparency, it is difficult to

know in what instances this approach has been used.

Congresswoman Johnson then asked how the U.S. Agency for

International Development (USAID) projects are improving rule of

law in Morocco. Mr. Johnson responded that USAID and the Embassy are working with the Ministry of Justice to reform judicial,

civil, and commercial mechanisms. In particular, USAID is helping

Morocco to set up a system of commercial courts and expects to

spend several million dollars over the next several years to complete this project. The project entails training judges for the courts

and sharing modern management techniques with the Ministry of

Justice.

Congressman English asked whether Morocco’s government procurement law is as good as it is reported to be. Mr. Johnson responded that Morocco passed a law in 1998 that requires most government procurement to be made by public tenders. In 1999, Morocco issued a tender for its second cellular license and earned $1.1

billion, whereas an earlier attempted tender that was not public or

transparent resulted in bids of only $400 million. This experience

has given Moroccan officials a strong incentive to pursue public,

transparent tenders.

Kathleen Kriger, the Embassy’s Commercial Counselor, then described several advocacy projects that she and Embassy staff are

pursuing. The most significant and politically high profile case is

the competition between Boeing and Airbus to renew Royal Air

Maroc’s (RAM’s) fleet. The tender, expected in May 2000, is estimated to be worth between $1 billion and $1.5 billion. Ms. Kriger

noted that RAM has had an all-Boeing fleet for more than 30

years, and that Boeing has enjoyed a close relationship with RAM.

Continuation of the all-Boeing fleet would provide substantial cost

advantages for RAM. Moreover, the second highest-ranking Boeing

official in the region, Senior Vice President for Sales, Seddik

Belyamani, is the highest ranking Moroccan-American in U.S. business. Nonetheless, Ms. Kriger indicated that Airbus is going all-out

for the sale. Some press accounts have even tied Airbus to a campaign linking Boeing (erroneously) with the Polisario movement in

the Western Sahara.

Other projects that the commercial office is supporting include a

GE project to sell turbines to a combined cycle power project, several other power projects involving Enron and CMS Corporation,

and a landfill project.

Meeting with The Honorable Alami Tazi, Minister of Industry, Commerce and Handicrafts

Rabat, Morocco; April 21, 2000

Minister Tazi welcomed the delegation to Morocco and explained

that he has been member of the Moroccan legislature for the past

36

30 years. He noted that the United States and Morocco have enjoyed very close relations for many years. King Mohammed VI, he

explained, has brought a new climate to Morocco of freedom and

solidarity that has borne political, economic, and social fruit among

the Moroccan people. The Minister indicated that the year 2000

has been one of severe drought in Morocco which will affect Moroccan economic growth, especially in terms of wheat production. The

new climate ushered in by King Mohammed, he said, will require

Morocco to work harder to address the problems caused by the

drought.

At present, Minister Tazi explained that Morocco is focusing its

attention on trade liberalization and economic reform. He asked

the delegation to convey to U.S. investors that their capital is welcome in Morocco and that they will find a favorable investment climate. The Moroccan Ambassador to the United States, he noted,

will have a very positive impact in this regard in the United States

and Ambassador Gabriel will continue to work very hard on this

as well.

Chairman Archer thanked Minister Tazi for meeting with the

delegation and explained that delegation’s purpose in celebrating

and reinforcing the longstanding and close bilateral relations between the United States and Morocco. The Chairman observed that

the world is changing and countries must move into a new environment. He further stated that ‘‘[i]n the 21st century, trade will replace frictions and wars of the past.’’ Just as General Shelton visited Morocco to discuss closer strategic and military alliances between our countries, Chairman Archer noted that ways must be

found to continue to strengthen the U.S.-Morocco economic partnership. As the United States makes an effort to expand trade and investment relations with Morocco, the Chairman expressed hope

that Morocco will ‘‘open the door to investors’’ to help raise the

standard of living for the Moroccan people. In this regard, he explained that transparency in government procurement, rule of law,

and a reduction in bureaucratic red tape is critical.

Chairman Archer noted that Ambassador Gabriel will always be

available to the Moroccan government to assist in any way possible. He added that the Ambassador recognizes how important

rainfall is to the Moroccan agricultural sector and how devastating

the current drought is on the Moroccan economy. Chairman Archer

explained that the Ambassador is working to get the U.S. government to provide additional wheat in this time of great need.

Chairman Archer stressed the importance of U.S. firms having

equal treatment to their European competitors in the Moroccan

market.

Congresswoman Johnson thanked Minister Tazi for his warm

hospitality and congratulated him for the Moroccan government’s

focus on education reform, especially efforts to open the educational

opportunities available to women. Congresswoman Johnson noted

that in the United States federal law opened the door to education

for women for the benefit of the entire country. She also expressed

concern that U.S. firms do not face a level playing field in Morocco

vis-à-vis their EU competitors and explained that her district in Connecticut is a large Boeing supplier and home to GE

37

Capital, both of which are interested in expanding their relations

with Morocco.

Minister Tazi said that he and Ambassador Gabriel enjoy a close

personal friendship and noted that the foundation of U.S.-Moroccan

relations is solid. The two countries need only to strengthen the

trade projects already underway and to continue the bilateral dialogue under the U.S.-Moroccan Trade and Investment Framework

Agreement. Minister Tazi explained that Morocco is seeking a climate that will be most suitable for U.S. investors. At present, twoway trade between the United States and Morocco is only valued

at $1 billion per year. Of this amount, U.S. exports to Morocco comprise 75 percent. Minister Tazi expressed his belief that two-way

trade between the United States and Morocco should total $3 to $4

billion per year. He noted that Morocco’s present volume of trade

with France is equal to $3.7 billion per year.

Minister Tazi stated his confidence that Ambassador Gabriel’s efforts to strengthen the bilateral relationship will reap great benefits. He noted that Morocco currently has three industrial parks

and that the government has plans to meet with CMS Energy to

discuss a possible industrial park in Tangiers. These industrial

parks will be home to a number of companies, primarily U.S. firms.

Minister Tazi noted that women are now serving in the government, in the legislature and in all levels of community and social

development. He observed that an association of Moroccan women

entrepreneurs exists which specializes in textiles and garment

manufacturing. Minister Tazi indicated that his own chief of staff

is female. He expressed hope that there will be an opportunity to

bring together U.S. women entrepreneurs with their Moroccan

counterparts.

Congresswoman Dunn thanked the Minister and explained that

she represents the Seattle, Washington area, which is home to Boeing. She underscored the importance of the treatment of U.S. firms

in Morocco. She noted that Boeing and Royal Air Maroc have enjoyed an extremely close relationship for 30 years and that Boeing’s

Senior Vice President for Sales, Seddik Belyamani, is the most senior U.S. businessman of Moroccan descent. Congresswoman Dunn

said that Boeing knows it must continue to compete with Airbus

and is extremely interested in the tender for new aircraft that

Royal Air Maroc has issued. She expressed hope that Boeing could

continue to serve Royal Air Maroc through its modernization period.

Congressman McDermott pointed out that two Members of the

delegation represent Boeing, which is an indication of how seriously Americans view the bilateral relationship with Morocco. He

observed that Arab relations with their friends are strong and are

not easily broken. Congressman McDermott expressed hope that

Boeing will win the contract with Royal Air Maroc, but noted that

it is most important that the contract be decided on merits. If there

is transparency in the process, he said, Boeing is convinced that it

can win.

Minister Tazi thanked Congresswoman Dunn and Congressman

McDermott for their comments and pointed out that the Moroccan

delegation at the WTO Ministerial in Seattle visited Boeing’s facilities and was welcomed by Mr. Belyamani. He observed that Seattle

38

is a thriving city, due to the presence of Boeing and Microsoft. Minister Tazi said that he encourages Boeing in every way possible

and noted that he would support the Royal Air Maroc contract

being awarded to Boeing if it were a matter in his jurisdiction. The

airline has called for an international tender because it involves a

large number of aircraft. Once all bids are received, Minister Tazi

said he was confident that the strongest supplier will be chosen.

Recently, he pointed out, Boeing delivered three aircraft to Royal

Air Maroc.

Congressman English expressed his interest in the Moroccan procurement process and complimented Minister Tazi on the passage

of the new law and implementation of a transparent procurement

process. He noted that Morocco has been on the cutting edge in the

WTO in this regard. Mr. English expressed his support for the combined gas power generating plant that CMS Energy has been involved with in Northern Morocco.

Minister Tazi said that Moroccans are very happy to see any contracts signed between the U.S. and Moroccan private sectors. He

noted that the CMS power plant is operating well under a strong

U.S. team and that it is the first of its kind, having been completely put together by the private sector.

Congressman Portman thanked the Minister for the opportunity

to discuss U.S.-Moroccan relations, especially in the area of trade

and economics. He explained that the General Electric Aircraft Engine Division is headquartered in his district, which has a great interest in maintaining close relations with Morocco. He noted that

there is a concern that the Moroccan Association Agreement with

the European Union may disadvantage non-European firms, including American firms. He expressed hope that a solution can be

found to develop a model for trade liberalization for the benefit of

all countries. In addition, Congressman Portman pointed out that

there is more that the United States can do to help Morocco with

debt relief and other forms of assistance, but he noted the importance of keeping in mind the successful model for economic growth

based on free markets that has been proven around the world.

Minister Tazi responded that Morocco will certainly seek to proceed with economic reform and to increase trade with the United

States. He noted that the Association Agreement with the European Union entered into force in March 2000 and will eliminate

tariffs on industrial products between Europe and Morocco over the

next 12 years. Minister Tazi indicated that U.S.-Moroccan relations

are strongly supported by King Mohammed VI and President Clinton, which will facilitate finding immediate solutions to any problems. The advocacy of the U.S. and Moroccan Ambassadors, as well

as the bilateral dialogue under the Trade and Investment Framework Agreement, will also help. Recently, he noted, there were

talks at the World Economic Forum in Davos, Switzerland between

the United States, Mauritania, Morocco, and Tunisia about establishing a dialogue between the United States and the Maghreb region. He indicated that there will be another high level meeting between the United States and Morocco in June.

Ambassador Gabriel noted that the U.S. Embassy has already

identified more than $2 billion worth of projects in which U.S.

firms can compete in Morocco.

39

Chairman Archer closed by thanking Minister Tazi for his time.

He noted that every country has its biases and thinks in terms of

its own interests. More than any other country, he said, the United

States has tried to give of itself in terms of the Peace Corps and

foreign aid. He observed that the United States has not generally

asked for much in return. Chairman Archer explained that the

United States believes that it is in its own interest to see other

countries grow and develop. He noted that Americans believe

strongly in competition in terms of raising standards of living and

understand the natural connection between Morocco and Europe.

However, he expressed the belief that if Morocco finds itself captive

to Europe, Moroccans will not get the very best deals in their trade

and business relationships. Chairman Archer said that the United

States enjoys a competitive edge in high-tech sectors and in terms

of economic performance and emphasized that it would be mutually

beneficial to both Morocco and the United States to have a stronger

trade relationship. He noted that Americans want to invest in Morocco and that Morocco is to be complimented for the progress it

has made.

Minister Tazi expressed his hope that Morocco’s friends will be

so evermore and noted that Morocco is proud to have been the first

country to recognize American independence. Geography has placed

Morocco next door to Europe, he said, but there is no reason that

Morocco would forget its longstanding relationship with the United

States. He indicated that Morocco can have many trading partners.

Ambassador Gabriel expressed his personal thanks to Minister

Tazi and his staff. He noted that Minister Tazi has been a great

friend to the United States and that no one in the Moroccan government has sought more to make sure that ‘‘the window across

the Atlantic is as big as the window across the Mediterranean.’’

Lunch Meeting with the American Chamber of Commerce in

Morocco

Rabat, Morocco; April 21, 2000

Ambassador Gabriel thanked the American Chamber of Commerce for its leadership in hosting the delegation and noted that

there has been a great increase in the number of high level U.S.

government visits to Morocco within the last two years. These visits have led to improvements in every aspect of relations with Morocco, the oldest ally of the United States.

The Ambassador noted that the delegation has aggressively advanced trade relations with Morocco. He introduced the Members

of the delegation and asked Chairman Archer to make a few remarks.

Chairman Archer began by explaining the jurisdiction of the

Ways and Means Committee in the U.S. Congress over tax policy,

health care, Social Security, welfare, and trade policy. He noted

that, as the world enters the 21st century, it is moving away from

government-to-government relations and is replacing them with

business to business relations. In the future, he said, the big issue

will be how to attract foreign investment to raise standards of living rather than dependence on foreign aid.

40

Chairman Archer continued by pointing out that trade is becoming the lifeblood of the relations of countries with each other. In

the United States, he noted, there is a battle over the issue of free

trade versus protectionism. The Chairman pointed out that all of

the Members of the delegation strongly believe in free and open

trade, and that the delegation is in Morocco to build on the

strength of the existing bilateral relationship. He said that Ambassador Gabriel has done an excellent job of representing U.S. interests in Morocco and is dedicated to trade and economic relations.

The Chairman expressed hope that Morocco will ‘‘open all of its

doors and windows’’ for U.S. investors to build Morocco with the

Moroccan people because it is only through investment that workers can have a better life. If Morocco builds an investment-friendly

environment, he said, investors will come to Morocco with technology and expertise.

Chairman Archer expressed the concern that U.S. firms may face

a potential imbalance as a result of Morocco’s Association Agreement with the European Union. He expressed hope that the United

States and Morocco can work together to be certain that there is

a level playing field that is transparent. The Chairman observed

that American firms will accept the competition that this environment will bring. If Americans cannot prove that a U.S. product or

service is better than the competition, he noted, then the deal

should go to someone else, but American firms should not lose because of non-transparent activities. Chairman Archer stated his belief that if Morocco is a captive market, ‘‘it is not to the benefit of

those who are captured.’’

Chairman Archer added that 2000 is a year in which the United

States will consider a number of important trade issues. Among

other things, he noted, Congress will consider whether the United

States will remain a member of the WTO and will vote on granting

permanent normal trade relations to China. While China is a long

way from Morocco, the Chairman pointed out that this vote will

send an important signal to the world about the commitment of the

United States to the multilateral trading system. Chairman Archer

expressed his firm belief that the United States must continue to

engage the world.

Chairman Archer closed by thanking the American Chamber of

Commerce for hosting the delegation and said that while the delegation would leave Morocco, Ambassador Gabriel will remain as a

strong voice for U.S. business interests in Morocco. Chairman Archer expressed his willingness to take questions from those in attendance.

Laurence DeWitt, Director General of Jorf Lasfar Energy Company and Board Member of the American Chamber of Commerce,

asked Chairman Archer about the chances of Morocco becoming

part of the African Growth and Opportunity Act pending in Congress. Chairman Archer responded by saying that the Africa bill

has been the subject of great conflict with the Senate over the past

six months. Both sides want to build a market in sub-Saharan Africa, he explained, but there are still vestiges of protectionism in the

U.S. Senate, particularly in the area of textiles, that are difficult

to overcome. The Chairman expressed hope that the bill will serve

as a foundation which can be extended to North Africa, which alVerDate 20-JUL-2000 09:58 Aug 08, 2000 Jkt 060332 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\CPRINT\65843 WAYS1 PsN: WAYS1
41

ready serves as a gateway to sub-Saharan Africa. Chairman Archer

expressed his interest in the United States negotiating free trade

agreements with Morocco, Egypt, and Tunisia, but he noted that it

would be fraught with controversy on the textile issue. He stated

that these initiatives will have greater chances for negotiation and

implementation once the quotas on textiles are eliminated in the

WTO in 2005.

Julianne Furman, Executive Director of the United States-Morocco Council on Trade and Investment, asked Chairman Archer

about the possibility of expanding the list of products, other than

textiles, that are eligible for GSP treatment. Chairman Archer responded by saying that this idea can be discussed and may hold

potential for expanding U.S.-Moroccan bilateral trade relations.

Karim Chraibi, Business Development Manager for CMS Energy,

asked Chairman Archer whether there is a chance that the United

States will sign a debt-equity swap agreement with Morocco as

France has done. Chairman Archer asked Congressman Portman to

respond. Congressman Portman noted that there are limitations

under U.S. law on what the United States can do on debt relief,

but he noted that the Department of Treasury is working on a vehicle within existing law to enable U.S. companies to purchase the

debt of foreign governments. He also indicated that Ambassador

Gabriel is working in this area.

Chairman Archer concluded by thanking the American Chamber

of Commerce again for hosting the delegation.

Meeting with Prime Minister Abderrahmane Youssoufi

Rabat, Morocco; April 21, 2000

The Prime Minister opened the meeting by emphasizing the

friendship between the United States and Morocco and their longstanding alliance. He noted that the volume of trade between the

two countries has increased significantly and a number of investment projects are being discussed. The Moroccan debt, he said, is

a handicap, and he thanked the United States for supporting the

increase in the debt ceiling by the Paris Club. The late King, he

said, was an initiator of the peace process, and the new King is

continuing this work. The Minister said that he hopes to see a declaration of an independent state of Palestine this year and that

peace between Israel and Lebanon has accelerated, noting his belief

that President Clinton is working to achieve this goal before he

leaves office. He also pointed to the Eizenstat Initiative meeting

held in Washington this week, noting that he would like to develop

an FTA among these countries (Egypt, Algeria, Tunisia, and Morocco). Morocco is the most stable government in the region, he emphasized, and Moroccan policies are favorable to democratic values.

The new King, he added, has displayed good political qualities and

acumen and symbolizes the stability of the state and its propensity

to develop democratic values and constitutional principles. ‘‘We’re

determined to work to assure that this region is one in which

democratic values prevail,’’ he declared, citing Morocco’s support for

peace on the African continent, in Europe, and in the Middle East,

as well as its participation in peacekeeping forces in Bosnia and

Kosovo.

42

The Prime Minister recognized the problems in Moroccan society,

such as poverty pockets, unemployment, and the important social

deficit in education and health. However, Morocco is addressing

these problems, he said, and is developing a policy to attract more

national and international investment, which in turn will create

stronger growth. Morocco has implemented legislative reforms, just

as recently as last month. He pointed to the drought as a major

catastrophe, noting the need to insure adequate food and water for

rural areas. He thanked the United States for grants of wheat and

for intervening with the Paris Club to raise the debt ceiling. He

then discussed Morocco’s debt burden, noting his optimism that additional U.S. investment will help absorb the debt, although recognizing that ‘‘problems in the House of Representatives’’ may make

it difficult. He noted that he supports the negotiation of a free

trade agreement with the United States.

Chairman Archer responded, noting how warmly his delegation

has been welcomed in Morocco. He noted that the delegation believes that the U.S.-Moroccan relationship is important and wants

to strengthen it further. He congratulated the Prime Minister for

the stability of the government and for its great help to the world

as an intermediary in the Middle East peace process. He noted that

the global economy is in a transition in which government aid is

declining and private investment is creating more and better jobs.

The Chairman said that the delegation wants to be an agent to increase opportunities for trade and investment to build on the infrastructure left by prior leaders. The delegation believes this is important, he added, because such a strategy is advantageous to the

United States as well as to the long term interests of the world.

He mentioned his great concern about the drought and how devastating it has been for the Moroccan economy. He noted that the

United States Ambassador will make a strong request for additional wheat shipments to Morocco.

Chairman Archer also pointed to the long-term importance of a

level playing field for U.S. companies to invest and do business in

Morocco, giving them an even chance with EU companies. He emphasized that he wishes to work with Morocco to maintain such a

level playing field, and after the delegation has left Morocco, the

U.S. Ambassador will speak for the delegation in this regard. The

Chairman stated unequivocally that ‘‘the ways of the past won’t

serve Morocco well in the future,’’ and Morocco must seek to increase investment through better transparency and rule of law.

The Chairman concluded by inviting the Prime Minister to the

United States.

Congresswoman Johnson noted the extraordinary achievements

of Morocco in the arts and in helping the poor and illiterate. She

also said that she is pleased to see how the United States and Morocco work together on U.S. aid funding. She also noted her appreciation of the importance of debt relief and increasing the number

of products eligible for preferential treatment under the Generalized System of Preferences. She concluded by pointing to her biggest concern about the long-term: that differential tariff rates could

develop because of Morocco’s association agreement with the EU.

The Prime Minister thanked the delegation for its sympathy concerning the drought and the proposal for additional shipments of

43

wheat. As to the investment climate, he noted that Morocco is ‘‘determined’’ to enforce transparency requirements, noting that Morocco has already put in place laws guaranteeing transparency, including a public tender system. The next problem to deal with, he

said, is licensing, and he is seeking to assure transparency in this

regard as well.

The Prime Minister then spoke about the EU association agreement that Morocco ratified on March 1, 2000, noting that the

United States should not have major concerns. The ultimate goal,

he said, is to conclude a free trade agreement between Europe and

North Africa. He stated that he hopes that Eizenstat Initiative,

which he appreciates as a counterweight to create a normal flow

of trade with the United States, will materialize soon. He noted,

however, that Algeria’s reluctance will make that difficult. The

Prime Minister then went on to speak of his government’s relationship with Algeria, noting that the first thing he did when he took

office was to reopen that border, which had been closed since 1994.

Morocco has supported a gas pipeline from Europe to Algeria,

which Algeria opposed. The Prime Minister has been promoting the

North African region as a tremendous market, and he emphasized

his eagerness to develop a better trade relationship with the

United States. He then added that he hopes that the United States

will use its influence to change Algeria’s behavior.

The Prime Minister stated that his government is strongly interested in women’s issues and has proposed an integration plan for

women to improve education, health, and socio-economic issues, as

well as an effort to improve family issues. The national debate on

these issues, he cautioned, creates ‘‘storms’’ because some are suspicious and feel threatened. However, he emphasized that the government is ‘‘keen’’ on fighting for gender equality.

Congresswoman Dunn stated that she was pleased with his comments about the government’s policies on women. On behalf of her

constituent Microsoft, she congratulated the Prime Minister on Morocco’s compliance with the WTO Trade-Related Intellectual Property Agreement (TRIPs). With respect to Boeing, another constituent, she emphasized how important it is to do business with

Morocco, and she mentioned specifically that Boeing is competing

to continue being the government’s aircraft supplier.

Congressman McDermott also noted how serious the Boeing

issue is and commended the Prime Minister for his commitment to

transparency. He stated his belief that Boeing will win the bidding

if the procedure is transparent. He expressed confidence that the

Moroccan government will take care of the Enron project as well.

He concluded by saying the two governments have been friends for

a long time.

The Prime Minister noted that Morocco has been a loyal customer of Boeing, having purchased Boeing aircraft only. The

French, however, have the right to try to sell Airbus aircraft. Boeing is extremely popular, he emphasized. Congresswoman Dunn responded by saying that all she asks is that Morocco maintains its

commitment to transparency. The Prime Minister responded by

saying that while in government, that has been his priority.

Chairman Archer emphasized that in general competition in investment will lead to better terms for Morocco. He mentioned the

44

specific case of Enron, a constituent, which joined with a local company to bid on a wastewater and power generation plant in northern Morocco using state of the art technology, asking the Prime

Minister to give fair consideration to the bid. He noted that it

would send a strong signal to have Fortune 500 companies invest

in the north of Morocco, where it is most needed. He also mentioned a pending General Electric project and noted his support for

ventures by other U.S. companies, including CMS, AES, and

Seawest. He also noted that in the insurance sector, it would be

helpful to Morocco if foreigners were permitted to own majority

ownership stake because more competition creates better products.

The United States Ambassador then spoke, noting that the

United States will work hard on food aid and debt relief ideas. He

stated that he is glad to hear that both the delegation and the

Prime Minister are interested in a free trade agreement, and he

noted the need to ‘‘speed up U.S. leadership’’ on this issue. He then

praised the Prime Minister for his leadership role in the government during a difficult time. The Prime Minister concluded by

praising the Ambassador as a great friend and advocate for U.S.

interests.

45

46

47

48

49

50

51

52

53

54

55

Æ