CODEL THOMAS DISCUSSES POTENTIAL FTA WITH TOP OMANI

UNCLAS SECTION 01 OF 02 MUSCAT 002012

SIPDIS

STATE FOR EB/TPP/BTA, NEA/PI, AND NEA/ARPI
STATE PLEASE PASS USTR/CNOVELLI AND JBUNTIN
USDOC FOR 4520/ITA/MAC/AMESA/OME/MTALAAT
TREASURY FOR OASIA
USDA FOR FAS
LABOR FOR ILAB/TFAULKNER

E.O. 12958: N/A
TAGS: ETRD BEXP ECON ELAB EINV MU
SUBJECT: CODEL THOMAS DISCUSSES POTENTIAL FTA WITH TOP OMANI
LEADERSHI P


1. SUMMARY: In lengthy meetings with Sultan Qaboos and Oman's
Foreign Minister, as well as a brief but productive final meeting
with the Omani Commerce Minister, CODEL Thomas took advantage of
the opportunity to explore Oman's readiness to jump into full-
blown free trade agreement (FTA) negotiations over the next 6-8
months. Chairman Thomas emphasized the need to look carefully at
Oman's labor legislation to make sure it meets core international
standards, as well as the need for complete transparency
regarding the criteria for foreign investment in Oman. Sultan
Qaboos pledged that Oman would work closely with the U.S. in
addressing these concerns, a message reiterated by the other
ministers. Chairman Thomas outlined his support for expediting
Oman's FTA timetable, and pledged to work constructively with the
Sultanate in the coming months as the process blazes forward. End
Summary.

--------------
Full Speed Ahead
--------------


2. During their 2-day visit to Oman November 8-9, five lawmakers
from the House Ways and Means Committee met with top Omani
leaders to discuss trade relations and the possibility of
negotiating an expedited FTA between Oman and the U.S. Led by
Chairman Bill Thomas (R-CA) and including Reps. Mike McNulty (D-
NY) , Nancy Johnson (R-CT) , Phil English (R-PA) , and Ron Lewis
(R-KY) , the delegation had an afternoon audience with Sultan
Qaboos, dinner with Minister Responsible for Foreign Affairs
Yusuf bin Alawi, and a brief meeting with Minister of Commerce
and Industry Maqbool bin Ali bin Sultan. In all three encounters,
Chairman Thomas clearly expressed his desire to move forward on
FTA talks within the next 6-8 months, before the expiration of
Trade Promotion Authority in July 2005.


3. Thomas buttressed his remarks by saying that Oman has proven
to be a staunch ally in the region, with extremely positive
bilateral military relations. There is no reason, he asserted,
that trade relations between the two countries should not blossom
in similar fashion. Moreover, the high quality of the commitments
that Oman made in its accession to the WTO in 2000 means that the
Sultanate has already taken many strong steps toward liberalizing
its trade regime. Looking at potential trading partners around
the world, Thomas and his colleagues believe that very few could
manage an ambitious timetable for completing FTA negotiations in
the next 6-8 months; Oman is one of them, and it is critical to
seize the window of opportunity. Sultan Qaboos and the other
interlocutors expressed satisfaction with this perspective, and
offered any and all assistance in seeing the process through.
"It's to our advantage [to conclude an FTA], and we look forward
to working with you," declared the Sultan.

--------------
Labor as Key Stumbling Block
--------------


4. Chairman Thomas explicitly mentioned the caveat that all FTAs
require bipartisan support to pass Congress. Labor is one area
where Oman could face difficulty in this regard, and CODEL Thomas
did not hesitate to raise this issue with Sultan Qaboos and his
ministers. In spite of a new labor law passed in 2003, Thomas and
his colleagues still need to verify that Oman is adhering to core
labor standards as defined by the ILO. Of particular concern are
the right to strike, to bargain collectively, to take labor cases
to an independent court, and to form unions.


5. The policy of Omanization could also be a sticking point,
particularly in fields where Omanis may show unwillingness to
work despite having positions set aside for them. Such
distortions in the labor market, claimed Thomas, could lead to
situations where Omanis exaggerate their bargaining leverage.
Members of the CODEL also seemed interested in the Omani programs
designed to promote entrepreneurship and self-employment, such as
the SANAD Fund, the Youth Fund, and other similar programs run by
the Omani government whereby young people can apply for soft
loans to start small businesses in their communities.

--------------
Transparency and Investment
--------------


6. Another concern clearly spelled out by Chairman Thomas was the
lack of an objective, transparent standard for foreign investment
above the 70 percent level. Although Minister Maqbool sought to
reassure Thomas that "all American investment is welcome" and
that the real concern was a flood of small-scale investments
(groceries, barber shops, etc.) from South Asia, Thomas insisted
that the criteria for investment must be universal and
transparent if an FTA is to win approval in the U.S. Congress.
Otherwise, Oman risks the perception of discriminatory treatment
of investment. Using the examples of insurance and banking, where
Oman has taken strong steps to reassure foreign investors and
establish clear rules and regulations, Thomas urged Oman to
examine its foreign investment laws to guarantee maximum
transparency leading up to FTA talks. In response to a query from
Minister Maqbool regarding possibly finding a way to welcome
American companies and investment without a full opening to the
subcontinent, Chairman Thomas suggested that Oman look carefully
at the Bahrain and Morocco agreements, where similar exceptional
circumstances were addressed. Not all FTAs are alike, explained
Thomas, but the important element is that they do not fall below
certain baselines.

--------------
Strong Commitment
--------------


7. Without exception, CODEL Thomas heard from Oman's leaders that
an FTA is desirable as soon as possible, and that the Omani
government is willing to address the specific concerns brought
forth by the USG. Sultan Qaboos emphasized that Oman would do its
part: "I'll make sure [the ministers] feel concern to get it
done," he told the CODEL. Minister Maqbool elaborated by stating
his desire to discuss "what we're not doing right and what we
need to work on." Thomas reciprocated by stating his intentions
to move as quickly as possible, provided that Oman maintains
strict adherence to the tightest of timelines. Thomas promised to
work closely with the Omani government and USTR in the coming
weeks and months.

--------------
Power of Example
--------------


8. One recurring theme was the advantage enjoyed by Oman in that
the U.S. already has strong, recent agreements with Bahrain and
Morocco. Thomas urged the Omanis to review these agreements to
avoid reinventing the wheel. Moreover, accompanying staffers from
CODEL Thomas passed along copies of correspondence from the
Moroccan government to the USG regarding steps taken by Morocco
to address labor concerns; the Embassy will share this
correspondence with the Omani government as an example of how the
adoption of a proactive stance on labor can significantly improve
the chances of finalizing an FTA. Rep. English commented that the
Morocco FTA demonstrated the importance of America's trading
partners being aware of the political constraints involved in
negotiating FTAs, particularly in areas such as labor and the
environment.

--------------
Comment
--------------


9. As the CODEL heard repeatedly, the very top political
leadership in Oman stands firmly behind FTA negotiations and
recognizes the mutual benefit to be derived from free trade. This
visit served to highlight the key areas in an FTA that will draw
Congressional scrutiny, and Chairman's Thomas' forthright style
laid most of the stickiest points plainly on the table. Once the
Omanis return from an extended Eid and National Day holiday, we
expect to engage them at every opportunity to review areas where
Omani legislation and enforcement currently fall short of FTA
baselines, and to devise means of delivering technical assistance
and conducting consultations where appropriate.


10. The delegation has cleared this cable.

BALTIMORE