SCENESETTER FOR VISIT OF CODEL THOMAS TO THE UAE

UNCLAS SECTION 01 OF 03 ABU DHABI 003925

SIPDIS

SENSITIVE

STATE FOR NEA/ARP AND H

E.O. 12958: N/A
TAGS: ECON ETRD EFIN TC
SUBJECT: SCENESETTER FOR VISIT OF CODEL THOMAS TO THE UAE


1. (U) Chairman Thomas: On behalf of Ambassador Sison, I
would like to welcome you and your delegation to the UAE.
Your visit comes during a dynamic period in the U.S.-UAE
bilateral relationship. I understand that you have been
briefed on the UAE, so I just wanted to highlight some
issues for your attention. The UAE is a loose federation
of seven emirates founded in December 1971, because the
individual emirates realized that they were too small and
too poor to be viable on their own. The federal structure
of the UAE, like that of the U.S., cedes certain powers to
the federal government, while reserving others to the
individual emirates. Individual emirates maintain
ownership of natural resources within their borders. In
effect, this means that Abu Dhabi, which controls 90% of
the proven oil and gas reserves in the UAE is by far the
richest and most powerful emirate.


2. (SBU) We have requested a meeting with Sheikh Hamdan bin
Zayed Al Nahyan, the Deputy Prime Minister and Minister of
State for Foreign Affairs (and fourth son of UAE President
Zayed). He has helped the UAE and the U.S. deepen and
expand our bilateral relations, which encompass the trade,
military, counter-terror, and nonproliferation arenas, to
name but a few. Senior UAEG officials want our economic
links to become as close as our other ties and argue that a
Free Trade Agreement would be the best way to cement this
relationship. As you know, the UAE is one of the
candidates for FTA negotiations with the U.S.


3. (SBU) There are a number of compelling arguments
supporting an FTA with the UAE. It would improve our
access to the third-largest economy in the Arab world and
expand opportunities for U.S. businesses, workers, and
farmers. The UAE is a major trade hub and a major regional
financial center, which has pursued largely pro-free market
and free-trade policies. Last year, the U.S. exported $3.5
billion in goods to the UAE and there are approximately 500
American companies physically present in the country. They
could potentially all benefit from changes in UAE laws that
would accompany an FTA.


4. (SBU) The UAE and the U.S. have had two very productive
TIFA Council talks in Washington. USTR Ambassador Zoellick
had a very successful visit here on October 13, in which he
clearly explained the requirements for an FTA and laid out
concerns that the UAE would need to address should we move
to FTA negotiations. For their part, UAE leaders welcomed
his message and reiterated -- at a political level -- the
UAEG's interest in negotiating an FTA with the USG and
their willingness to address the concerns raised by
Ambassador Zoellick.

Leadership succession and political stability
--------------


5. (SBU) Sheikh Zayed Bin Sultan Al Nahyan, the UAE's
leader since the Emirates became a federation in 1971, is
in failing health. We strongly recommend against raising
this issue with Emirati interlocutors, as they are
sensitive about this issue and a rumor mill that has been
in overdrive. When Sheikh Zayed passes away, his eldest
son, Abu Dhabi Crown Prince Sheikh Khalifa, will succeed
him both as Ruler of Abu Dhabi and as President of the UAE.
In November 2003, Sheikh Zayed issued a decree appointing
his third eldest son, Mohammed, to the position of Deputy
Crown Prince of Abu Dhabi, with the explicit stipulation
that Mohammed would become Crown Prince of Abu Dhabi when
that post became vacant. The appointment of Mohammed, who
is also the Chief of Staff of the UAE Armed Forces,
clarified the succession line and put an end to years of
speculation about likely successors.


6. (U) You will be meeting Sheikh Zayed's fourth eldest
son, Hamdan Bin Zayed. The de facto Foreign Minister since
1990, HbZ is highly capable and works to cement political
and economic ties with UAE's key partners. He is a key
bilateral interlocutor and proponent of an FTA. He plays a
critical role in coordinating policy among the seven
emirates and exerting discipline in the cabinet. He chairs
the Red Crescent Authority that took lead on UAE's
humanitarian assistance to Afghanistan, Iraq and Palestine.
Hamdan Bin Zayed, like his brother Mohammed, generally
travels to Washington once a year to meet with senior
Administration officials. Hamdan Bin Zayed understands
English well, but prefers to speak in Arabic, using an
interpreter. He is addressed as "Your Highness."

The Economy
--------------


7. (SBU) President Zayed has ruled over a country that has
grown rapidly in the 33 years since the country was
founded. The UAE is both a rich and rapidly developing
country: the third largest in the Arab world behind Saudi
Arabia and Egypt. With a per-capita GDP of nearly $20,000
and an estimated real economic growth rate this year of
5.5% to 6%, it is a growth market for U.S. exports in goods
and services. Some of the key sectors for U.S. exports
include construction/engineering, information technology,
and the oil services sector. The UAE is also a potentially
huge market for financial services, especially now that it
is benefiting from high oil prices and the inflows of
capital from the region.


8. (SBU) Although the UAE has a generally open economy with
opportunities for U.S. businesses, we have raised a few
concerns with the UAE in the context of a potential FTA.
These concerns the UAE labor law, rules regulating foreign
investment, and some Arab league boycott concerns. We have
raised all of these concerns with the UAE and they have
committed to working with us to address them.


9. (SBU) The current UAE Labor Law does not provide for
labor unions, the right of association or collective
bargaining. The UAEG is in the process of revising its
labor law to allow for the creation of labor unions and
drafting a law that regulates them. The UAEG is concerned
about balancing its commitment to improving workers' rights
with the security and social challenges of having 98
percent of the private sector workforce (and 80 percent of
the entire population) foreign. UAEG officials, however,
have told us that they understand that their labor laws
need to meet ILO standards and that they are working to
ensure that their revised labor law and a supplemental law
regulating labor unions meet these standards.


10. (SBU) UAE laws limit foreign ownership of most
companies to 49 percent and provide for local agents or
distributors for companies that wish to export to the UAE.
These laws provide a disincentive for foreign investors and
we have explained that they would violate our insistence on
"national treatment" for U.S. investors in any FTA. Senior
UAEG officials have explained that this is a sensitive
issue for many UAE nationals, who rely on agency or
distributor relationships for much of their income, but
have committed to working on resolving these issues in the
context of a FTA. UAE and Emirate level leaders will need
to engage with their constituents to address their concerns
on this matter. We understand that they have begun this
process.


11. (SBU) Although the UAE no longer enforces the secondary
or tertiary aspects of the Arab League Boycott on Israel,
U.S companies have faced contracts in the UAE with boycott
provisions. In many cases, we understand that the UAE
companies and government agencies in question were
recycling old forms and resolved the issue after
discussions with the U.S. company. We have raised this
problem with senior members of the UAEG, who have assured
the UAE had renounced implementation of the Secondary and
Tertiary aspects of the Arab League Boycott and would not
boycott any U.S. company. After Ambassador Zoellick's
visit, the UAE Ministry of Economy and Commerce instructed
government agencies and parastatal companies to resolve
this problem. The UAEG also identified a point of contact
for companies that face boycott requests.

The Political Relationship
--------------


12. (SBU) As the UAE is looking to develop a closer
economic relationship with the U.S., its political
relationship with the U.S. is strong. The UAEG has been a
close partner of the U.S., especially in the global war on
terror and in efforts to promote regional stability. On
the military side, the UAE provides access to U.S. forces
and hosts more ship visits than any port outside the United
States. The UAE provides hanger and ramp facilities for
U.S. aircraft at Al-Dhafra Airbase and dedicated deepwater
berthing space in the Port of Jebel Ali that can
accommodate aircraft carriers. The UAE has also cooperated
closely with the U.S. and the international community in
efforts to cut terrorist financing.


13. (U) The UAE has been a strong supporter of the new
Afghan and Iraqi governments both politically and
financially. In Iraq, for example, the UAE has built or
rebuilt hospitals, provided food and medical supplies, and
(under an agreement with the Germans) provided joint
training to Iraqi police in the UAE. The UAE has also
issued strong public statements in support of Iraq's
interim government, condemned acts of terror in Iraq, and
warmly welcomed the various Iraqi authorities, including
both President Al Yawar and Prime Minister Allawi. The UAE
has been Iraq's largest trade partner after the war with
exports and re-exports valued at $1 billion.


14. (U) The UAE Government's human rights record is
generally good. However, we have raised concerns with them
about the trafficking in persons problem, primarily
trafficking in women for the purposes of sexual
exploitation and trafficking in young boys (the majority
from South Asia) to work as camel jockeys. The UAE was
dropped to Tier Two in the 2004 Trafficking in Persons
report due to lack of appreciable progress in combating sex
trafficking. The UAE showed some progress last year in
combating trafficking in children to work as camel jockeys.
However, over the past few months, several non-governmental
organizations and media outlets, including the Home Box
Office, have reported that this problem persists.

15. (U) Ambassador Sison returns to the country November 2
and will welcome you at the Airport.

Albright