(C/NF) MINISTER OF INDUSTRY TALKS SECURITY AND FTA

C O N F I D E N T I A L MANAMA 001225

SIPDIS

NOFORN

DEPT FOR NEA/ARP AND DRL:KAUDROUE
DEPT PASS USTR JBUNTIN, CMILLER, WCLATANOFF
COMMERCE FOR CLOUSTAUNAU
LABOR FOR LKARESH

E.O. 12958: DECL: 08/01/2014
TAGS: PREL ETRD KTEX ELAB BA KSEC KINR
SUBJECT: (C/NF) MINISTER OF INDUSTRY TALKS SECURITY AND FTA

Classified By: CDA Susan Ziadeh, Reasons 1.4 (b) and (d)

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(C/NF) SECURITY
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(C/NF) 1. Minister of Industry--and more importantly trusted
Senior Advisor to the King (and a member of his informal
kitchen cabinet)--Dr. Hassan Fakhro opened and closed his
August 2 welcoming meeting with Charge by addressing our
current security relationship. The Minister straight-away
said that the possible DODDS Bahrain School closure is
unsettling to many in Bahrain, noted its central role in
cementing the bilateral relationship, and pressed for the
issue to be resolved soon. Charge said that, with the school
year fast approaching, the USG is moving toward a final
decision.

(C/NF) 2. The Minister, who attended the G-8 Sea Island
Summit with the King, noted that the King has tremendous
respect for President Bush and that he and the Crown Prince
have strong relations with the Administration. Having
established the King's and the Crown Prince's pro-U.S.
stance, the Minister said that "higher-ups" would work with
the Embassy on all issues, security in particular, and would
provide answers to satisfy us, if we let them know what it is
that we need. The Minister sees a lack of communication as
the root cause for the current state of the U.S.-Bahraini
security relationship and offered personally to act as
Embassy's direct but informal channel to the King. Most
importantly, the Minister said that in times of stress, it is
important to maintain a cool head, to communicate, and not to
overreact. "Overreaction can create problems," was his final
statement.

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(U) FTA
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(U) 3. On FTA, Minister Fakhro told Charge August 2 that
Bahrain depends on the U.S. for its economic guidance.
Responding to Charge's question of what we could do to help
implement FTA successfully, the Minister said that USG and
consultants are already studying available resources to
maximize benefits. He said business, too, particularly in
the textiles sector, is studying the text of the FTA
carefully to discover in the fine print ways to profit from
the agreement. The ongoing public comment period is helping
the learning process along, and one day, the Minister noted,
"we will all be wiser." There is already interest in new
industrial investment, and the Minister expects this interest
to increase once the FTA is finalized.

(U) 4. Exhibiting Pollyanna-like optimism, the Minister
pointed to tremendous post-FTA textile job creation in
Jordan, and said that he expects the textile and garment
industry sector to benefit most from the FTA. He noted the
industry's interest in expanding existing factories and
starting new garment factories. These developments would
affect employment considerably, he said, especially if
Bahrainization rates reach the targeted 80 to 90 percent.
Asked about the industry's ability to compete with global
labor markets, the Minister admitted that industry would need
to work on this issue, but quickly added that the people
employed in this industry would not readily be employed
otherwise, and so would be willing to accept "reasonable"
salaries, allowing the factories to remain competitive.

(C) 5. Comment: Fakhro is clearly worried that closure of
the school will damage Bahrain's ability to attract foreign
direct investment, undercutting the positive momentum of the
FTA signing. For moderate, oil-poor and majority Shi'a
Bahrain, a loss of economic confidence or flight of expat
businesses to Dubai and other regional locales offering
competitive services - including top-flight schools - would
be a heavy blow that could slow, if not derail, the GOB's
political and economic reform program.
ZIADEH