[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]


106th Congress                                                    WMCP:
 2d Session                 COMMITTEE PRINT                      106-12
_______________________________________________________________________

                                     


                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                               __________

                                 REPORT

                                   ON
 
                     TRADE MISSION TO CZECH REPUBLIC, 
                            EGYPT, AND MOROCCO


                                     
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     
                             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


                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
65-843                     WASHINGTON : 2000


                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel


                         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.


                       MEMBERS OF THE DELEGATION

                          Members of Congress

HON. BILL ARCHER, Chairman           HON. JIM McDERMOTT
HON. NANCY JOHNSON                   HON. JOHN TANNER
HON. AMO HOUGHTON
HON. JENNIFER DUNN
HON. ROB PORTMAN
HON. PHIL ENGLISH

                                 Staff

ANGELA ELLARD
DON CARLSON
JANICE MAYS
DONNA THIESSEN
TIM REIF
KAREN HUMBEL



                            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


                        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.


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 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 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.


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 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 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 retroactive 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.
    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 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 privatize 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 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 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 
situation 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.
    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 Division, 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 
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 two-step process involved, and the government 
must take delivery first.
    The Prime Minister noted that the average Czech salary is 
one-tenth 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 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 short-term 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. 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. 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 
Agriculture, 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 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 
commented 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 pro-trade 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 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 hi-tech 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 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.

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 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.

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 question 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 military-to-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 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 environment 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 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 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 Mohammed 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 
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 transaction. 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 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 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, two-way 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 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.
    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.
    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 already 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.
    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 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 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. 

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