SCENESETTER FOR SECRETARY SNOW AND THE U.S.

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 004202

SIPDIS


TREASURY FOR SECRETARY SNOW FROM AMBASSADOR WAHBA
DEPT FOR NEA, NEA/ARP, EB/IFD/ODF - WIVEL
TREASURY FOR IMF/WB OFFICE - WILEDON
DOD FOR COMPTROLLER ZAKHEIM

E.O. 12958: DECL: 09/15/08
TAGS: AORC ECIN EFIN EINV OVIP PREL PGOV TC
SUBJECT: SCENESETTER FOR SECRETARY SNOW AND THE U.S.
DELEGATION TO THE IMF/WB MEETINGS IN DUBAI


1. (U) Classified by Ambassador Marcelle M. Wahba for
reasons 1.5 (b) and (d).


2. (C) Secretary Snow: I would like to welcome you to the
UAE as you prepare for the 2003 annual meetings of the
International Monetary Fund (IMF) and the World Bank (WB)
in Dubai. Dubai's leadership has invested enormous capital
and labor preparing for the September 20-24 IMF/WB
meetings, to be held at a brand new convention center
custom-built for the event. We expect the local
hospitality industry will reap huge windfalls following the
conference, akin to the benefit that accrues to cities that
host the Olympic Games. This event is a prime opportunity
for the UAE -- and Dubai, in particular -- to showcase its
first-class financial, transportation, and logistics
industries.


3. (U) Although oil continues to be the driving force in
the UAE -- Abu Dhabi possess some 10 percent of the world's
oil reserves -- the UAE is considered to have a relatively
diversified economy compared to its Gulf neighbors. Major
non-oil industries in 2002 included manufacturing (11
percent of GDP),wholesale and retail trade (10 percent of
GDP),government services (9.6 percent of GDP),and
construction (8 percent of GDP),according to official UAE
statistics. In addition, trade with the United States was
significant in 2002. U.S. companies exported more than $3
billion in mostly machinery, manufacturing spare parts, and
luxury vehicles to the UAE in 2002, and imported about $1
million in petroleum products.

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Dubai Goes Prime Time
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4. (U) The scarcity of petroleum deposits in the emirate
of Dubai has encouraged the leadership there to actively
promote private sector growth. Dubai Crown Prince Sheikh
Mohammed bin Rashid Al-Maktoum has forged ahead with scores
of burgeoning real estate, infrastructure and construction
projects. The list of current construction projects in the
pipeline is staggering, ranging from major airport and
seaport expansions to the establishment of yet more free
zones, to five star hotels and the now legendary Palm
Islands -- two six kilometer-long artificial luxury
residential peninsulas in the shape of palm trees extending
out from the Dubai shoreline.


5. (U) Dubai also is home to the largest and most
successful free zone in the world -- the Jebel Ali Free
Zone (JAFZ). More than 2,200 companies representing 80
countries have set up shop in the JAFZ, including numerous
Fortune 500 firms. Presently, 13 free trade zones operate
in the UAE, and more are in the developmental stage.
Overall, these free zones form a vital component of the
local economy, and serve as major re-export centers to the
Gulf region. Since UAE tariffs are low and not levied
against many imports, the chief attraction of the free
zones is the waiver of the requirement for majority local
ownership. In the free zones, foreigners may own up to 100
percent of the equity in an enterprise.


6. (C) A variety of innovative free zones in Dubai has
been established since 2000, most notably the TECOM
(Technology, Electronic Commerce and Media) free zone.
TECOM houses both Internet City and Media City, two
subdivisions which cater, respectively, to the IT and media
sectors. TECOM offers a high bandwidth, state-of-the-art
IT infrastructure. Current tenants of TECOM include
prominent names such as Oracle, Reuters, CNN, Hewlett
Packard and Microsoft. Other Dubai free zones planned
include Health Care City, specializing in medical products
and services, and the Mohammed Bin Rashid Technology Park,
which aims to promote scientific research and development,
and to transfer technology throughout the region. Set to
open shortly (as soon as implementing regulations have been
formalized) is the Dubai International Financial Center
(DIFC),a "free zone" for top-tier financial institutions.
DIFC is designed to create a financial market place between
the financial centers in London and Hong Kong. DIFC is
setting up its own regulations based on international best
practices; it will, however, be subject to UAE anti-money
laundering laws.

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Bilateral Issues
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7. (C) In addition to the multilateral meetings on Iraq,
Afghanistan, and financial reform, you may have the
opportunity to meet with key UAE interlocutors, including
UAE Defense Minister and Dubai Crown Prince Mohammed bin
Rashid Al-Maktoum and titular UAE Finance Minister Hamdan
bin Rashid Al-Maktoum. I know that a number of meetings
also have been scheduled on the margins of the IMF/WB
meetings with de facto Finance Minister Mohammed Khalfan
bin Khirbash, who manages a vast portfolio including UAE
aid to Iraq and Afghanistan. We also understand that
Chairman Greenspan will meet with UAE Central Bank Governor
Sultan Nasser Al-Suweidi, who has championed our bilateral
efforts to combat terrorist financing in the region.
Undersecretary Larson will meet with de facto Finance
Minister Khirbash.


8. (C) There are a number of economic and commercial
issues that our UAE interlocutors may raise in these
meetings, the most sensitive of which are ARBIFT, double
taxation, and OPIC coverage for the UAE.

ARBIFT
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9. (C) The USG has frozen more than $120 million belonging
to the Arab Bank for Investment and Foreign Trade (ARBIFT),
which has been determined by OFAC to be a Specially
Designated National (SDN) of Libya. The majority of these
funds, however belong to Emirati depositors, and the
continued freezing of these funds has become one of our
largest bilateral irritants. In consultation with OFAC,
the UAE recently revised the management structure of the
bank to remove Libyans from day-to-day oversight of
activities and agreed to replace the Libyan Chairman with
an Emirati this fall. The UAEG hopes that the change in
the bank's chairmanship may permit the licensing of some of
ARBIFT's funds to the UAE, which in turn could be used to
issue new shares and thereby reduce Libya's equity stake.

Double Taxation
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10. (C) The UAE Ministry of Finance is interested in
talking to Treasury's Office of International Tax Counsel
about the modalities of a double taxation agreement.
Treasury, in the past, has informed Post that a double
taxation agreement with the UAE is not possible due to the
vast differences in the two countries' tax systems. UAE
officials, however, may ask for further clarification.

OPIC
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11. (C) The UAE has been suspended from U.S. OPIC
insurance programs since 1995 because of the UAEG's lack of
compliance with internationally recognized worker rights
standards -- particularly rights to association and
collective bargaining. The ILO reported in April 2003,
however, that the UAE had started to address these
concerns. This year the UAEG drafted a labor law in
consultation with the ILO that permits the creation of
formal labor associations/unions. We expect OPIC officials
to travel here for consultations this fall.

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Expression Of Thanks
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12. (U) More broadly and if given the opportunity, you
also may want to express your appreciation for the UAEG's
continued cooperation with us on counter-terrorism, and
substantial support to Iraq and Afghanistan, detailed in
paragraphs 13-15.

Counter-terrorism
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13. (U) Combating terrorist financing through its formal
and informal financial networks has been a major goal of
the UAEG since 2000, and an area in which the UAEG has made
tremendous strides. The UAE was the first Arab country to
become a member of the elite Egmont Group of Financial
Intelligence Units. The UAEG implemented a law to
criminalize money laundering, to include terrorist money
laundering, in February 2002. The UAEG has been
particularly cooperative with international efforts to
block terrorist financing, including freezing the assets of
more than 150 named terrorist entities and, working in
partnership with the United States, simultaneously freezing
and seizing significant assets in the UAE belonging to the
Al-Barakat terrorist financing group. The UAE continues to
coordinate and share information on potential terrorist
financing operations with the United States.

Iraq
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14. (C) UAE assistance to Iraq, both pledged and
delivered, has been significant. UAE Chief of Staff Shaykh
Mohammad bin Zayid Al-Nahyan confirmed to the Ambassador in
July that total UAE assistance to Iraq has exceeded $50
million, and he expects this figure to rise to USD $80
million by the end of 2003. This figure obviously doesn't
include the considerable private humanitarian donations to
Iraq provided by senior royal family members. The UAEG
also provided specific proposals for participation in
Iraq's economic recovery. Most recently, the UAE Central
Bank Governor met with representatives from Treasury's Iraq
Task Force in August to firm up UAEG offers of training to
Iraqi bankers in banking operations, banking supervision
and examination, and anti-money laundering detection and
investigation.

Afghanistan
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15. (C) The UAE has provided millions of dollars in
financial aid and assistance-in-kind to the Afghan Interim
Authority. UAE humanitarian and military programs in
Afghanistan are ongoing, and we expect the final price tag
to far exceed the $150 million already spent. The UAEG
pledged $30 million in economic assistance to Afghanistan
and a further $6 million in humanitarian aid -- over and
above the millions of dollars in humanitarian assistance
previously delivered -- at the January 2002 Tokyo
conference. The UAE also has provided an assistance-in-
kind package to the Afghan National Army totaling $50
million. The UAEG continues to provide substantial
personal financial support to Karzai, who is rumored to
have received several million dollars during his visits to
Abu Dhabi in 2002.


16. (U) CPA minimize considered. This cable was
coordinated with Congen Dubai.

Wahba