GCC COMPLAINS US-BAHRAIN FTA BREAKS THE RULES

C O N F I D E N T I A L MANAMA 001792

SIPDIS

DEPARTMENT FOR NEA/ARPI
DEPARTMENT PASS TO USTR JASON BUNTIN

E.O. 12958: DECL: 11/29/2014
TAGS: ETRD ECON PREL BA
SUBJECT: GCC COMPLAINS US-BAHRAIN FTA BREAKS THE RULES


Classified By: Charge D'Affaires Susan L. Ziadeh for reasons 1.4 (b) an
d (d)


1. (C) Summary: A November 23 Reuters article generated a
flurry of responses in the Bahraini press including
front-page coverage of comments by the Prime Minister. The
article quoted an unnamed Gulf Cooperation Council (GCC)
official who said GCC member states believed the U.S.-Bahrain
Free Trade Agreement (FTA) violated Bahrain,s regional
commitments. We expect that this issue will be raised at the
upcoming GCC ministerial conference to be held in Bahrain in
early December, but understand that the GOB is not concerned
they have upset the apple cart. We believe Bahrain is
counting on continued regional interest in following
Bahrain's lead and that the GOB may pursue bilateral
engagement with the most likely source of these comments,
Saudi Arabia. End Summary


2. (U) The November 23 Reuters article quoted an anonymous
GCC official who said that member states, particularly Saudi
Arabia, were "perturbed" at Bahrain,s violation of regional
commitments. The article cited Saudi concerns that duty-free
U.S. goods would flood its market via the Bahrain causeway.
The GCC official added that all member states, including
Bahrain, remained committed to collective rather than
bilateral negotiations, but that the FTA was a reward for
Bahrain, which had succumbed to significant "political
pressure" from the U.S. The Reuters article also quotes
Yousif Humoud, Director of Economic Planning at the Ministry
of Finance and National Economy (MOFNE),who denies Bahrain
is under any pressure from its regional partners.


3. (U) In a November 29 article in the English-language
Bahrain Tribune covering statements made by Prime Minister
Sheikh Khalifa bin Salman al Khalifa at his majlis the day
before, the Prime Minister stressed that other GCC states had
entered into bilateral agreements in the past without similar
objections. He also reaffirmed that a preferential trade
relationship with the U.S. was well within Bahrain,s rights.


4. (C) In a follow-up conversation, with EmbOff, Humoud noted
that Bahrain had closely consulted with its GCC partners
throughout the negotiation. He said the dissatisfaction
reported in the article was not something the GOB was getting
through official channels. Humoud also believes the
announcement on November 15 that two other GCC members, the
UAE and Oman, would enter into FTA negotiations with the U.S.
was evidence that the complaints were not serious. Humoud
reaffirmed that the FTA was consistent with GCC commitments
on preferential treatment. He noted that GCC states can
not/not give any country with which they have a bilateral
agreement any preference that exceeds the preference granted
to GCC member states. According to Humoud, in this case the
privileges granted are the same and therefore within the
bounds of Bahrain,s GCC commitments.


5. (C) A November 25 article in the Arabic Al-Ayam newspaper,
in which we believe the anonymous source quoted is Humoud,
cites an agreement reached in the GCC Financial and Economic
Affairs Committee on December 14, 2002 that stipulates that
tariffs on goods imported into any GCC state, which may be
exempt from duty based on a bilateral trade agreement, can be
levied at the border of the GCC state into which they are
re-imported. Therefore although U.S. goods are cheaper in
Bahrain, their import via Bahrain will not effectively reduce
any tariffs another GCC state may choose to levy on U.S.
goods.


6. (C) Comment: It is our sense that the GOB, although eager
to lay down a marker in the press before the agreement goes
before Parliament, believes there is little substance to
these claims. Embassy Manama understands that King Hamad
raised this issue in his meeting with Secretary Powell, and
that he sees the FTA as purely a bilateral issue with the
U.S. Comments from MOFNE staff affirm that Bahrain sees no
conflict between the FTA and ongoing liberalization within
the GCC. End Comment.
ZIADEH