US/UAE FTA FIRST ROUND

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001438

SIPDIS

STATE FOR EB/TPP/BTA, NEA/ARPI, NEA/PI
STATE PASS USTR FOR DOUGLAS BELL

E.O. 12958: DECL: 02/04/2025
TAGS: ETRD EINV ELAB ECON PREL USTR TC FTA
SUBJECT: US/UAE FTA FIRST ROUND

Classified By: (U) Classified by Ambassador Michele J. Sison for reason
s 1.4 (b) and (d).


1. (C) Summary: The United States and the UAE held the first
round of Free Trade Agreement negotiations in Abu Dhabi,
March 8-10. UAEG leaders are enthusiastic about the prospect
of an FTA with the United States. After a somewhat slow
start the negotiators made significant progress, concluding
the round on an upbeat, positive note. With sufficient
progress by the Emiratis before the next round, it should be
possible to close on 3-4 chapters and make significant
progress on the remainder. While there were no surprises
raised in the negotiations, it is clear that resolving the
issues of the Agency and Company laws will be challenging.
The U.S. and the UAE agreed to hold a second round of
negotiations in early May. Press coverage of the
negotiations was positive, and nearly all articles included
quotes from the lead negotiators about a bilateral FTA not
violating the UAE's GCC obligations. The UAE business
community, while cautiously optimistic about the FTA, is
frustrated with a lack of transparency from the UAEG. It
will be incumbent on the UAEG to increase its outreach to the
business community in the coming months. End summary.

ENTHUSIASTIC LEADERS, NERVOUS NEGOTIATORS
--------------


2. (SBU) UAE leaders are enthusiastic about an FTA with the
United States and are committed to the process. UAE lead
negotiators, Minister of State for Financial and Industrial
Affairs Mohammad Khalfan bin Khirbash and Minister of Economy
and Planning Sheikha Lubna Al Qasimi, acknowledged public
concerns about possible negative effects of an FTA for
certain companies and individuals in the UAE, but they both
noted the UAEG leadership's staunch commitment to moving
forward. Minister of Information and Culture, Sheikh
Abdullah Bin Zayed Al Nahyan explained that the FTA with the
United States is a critical part of the leaders' efforts to
keep the UAE a "modern success story."


3. (C) Working-level negotiators were nervous that they would
unintentionally commit the UAE to unfavorable terms, and
focused on the meaning and implications of the proposed text.
Many of the negotiating groups reported significant progress
by the end of the first round and agreed on an aggressive set
of deliverables between now and the next round. The Central
Bank Governor, who chaired the Second Trade Investment
Framework Agreement meeting in Washington last October,
attended the Financial Services sub-group, sending a message
to the negotiators that he was personally committed to coming
out of the first round of negotiations with positive
momentum.

AUSTR NOVELLI DISCUSSES GCC, LABOR DURING BILATS
-------------- --------------


4. (SBU) AUSTR Novelli held separate bilateral meetings with
Dubai Crown Prince Mohammed Bin Rashid Al Maktoum (MBR),
Minister of Information and Culture Sheikh Abdullah Bin Zayed
Al Nahyan, and Minister of Labor Dr. Ali Bin Abdullah Al
Ka'abi. Sheikh Abdullah and Dr. Al Ka'abi both admitted that
the UAE has not finished drafting legislation to allow for
collective bargaining and right of representation, but the
Ministry of Labor is working with the ILO to ensure that the
draft law conforms to ILO standards. Dr. Al Ka'abi explained
that the UAE is considering a staged approach to the right to
representation that may initially permit membership for UAE
nationals only. He said the ILO agreed in principle to this
strategy, but would come to the UAE at the end of March or
early April to review the specifics of the draft law. In a
country where 91 percent of workers are expatriates, UAE
leaders have serious national security concerns over the
prospect of allowing trade unions. According to Sheikh
Abdullah, "this issue is not cultural or economic -- it has
to do with our existence." AUSTR Novelli noted the
importance of the UAE putting in place an ILO-compliant labor
law in a timely fashion if this agreement is to be
successfully ratified in the U.S. Congress.


5. (SBU) In light of recent publicity regarding Saudi
Arabia's discontent with bilateral FTAs, Sheikh Abdullah said
that UAE businesses are worried that an FTA with the United
States would create problems with trading with Saudi Arabia
in the future. According to Sheikh Abdullah, the Saudis do
not understand that other Gulf countries are seeking to
obtain the benefits of bilateral FTA's. The Saudis think the
other GCC states are doing it to taunt Saudi Arabia. Echoing
other leaders' concern over the challenges of bringing Saudi
Arabia up to the level of the other GCC countries in terms of
trade liberalization, MBR said it would never be possible to
conclude a multilateral US/GCC FTA and therefore GCC
countries needed to pursue bilateral agreements. (Note:
Novelli's discussions about camel jockeys will be reported
septel.)

POSITIVE PRESS
--------------


6. (U) Optimistic soundbites by Dr. Khirbash were widely
reported in the run-up to and during the negotiations, as
were positive comments from AUSTR Novelli's multiple press
interactions. The press also stressed her assertion that
there are no political preconditions for an FTA, and that the
U.S. will not demand lifting the Arab League boycott on
Israel. In particular, the press focused on the lead
negotiators' comments that a bilateral FTA does not
contradict the UAE's GCC obligations. The press articles
highlighted that, with the exception of Saudi Arabia, all of
the other Gulf states are keen on entering into bilateral
FTAs with the United States. The press also highlighted
Jordan's significant economic growth after the implementation
of its FTA with the U.S. as a demonstration of how the UAE
economy will benefit.

LACK OF TRANSPARENCY CONCERNS UAE BUSINESS COMMUNITY
-------------- --------------


7. (SBU) The Dubai business community expressed frustration
at the UAE Government,s lack of transparency on the process
of the FTA negotiations. Obaid Al Tayer, President of the
Dubai Chamber of Commerce and Industry (DCCI) claimed that
not a single UAEG official had met with the business
community to provide information or allay fears. (Note: The
UAEG has consulted with the UAE business community --
including the DCCI -- but the extent and depth of the
consultations was clearly not sufficient to allay the
business community's concerns, and government negotiators
have made no secret of their strong preference to keep the
Dubai Chamber at arm's length.) In response to Al Tayer,s
claims that the UAEG was using &confidentiality8 agreements
with the U.S. to restrict access, Novelli was clear that U.S.
policies do no such thing, and the U.S. actively consults
with the private sector; witness the meeting Al Tayer was
attending.


8. (U) The UAE business community was selectively informed
about specific content of previous U.S. FTA agreements in the
region, and asked many detailed questions, some out of
context, about previous FTAs that they thought could prove
problematic to local industries. They also made the
observation that a good agreement is better than a fast
agreement, and expressed concern about the pace of the
process. Major themes were concerns about an FTA affecting
trade with Saudi Arabia and Iran, the national security
implications of lopsided UAE demographics (over 80 percent of
the population is made up of foreign nationals),the ability
of small and medium companies to access the U.S. market and
remain competitive in the UAE (particularly in the financial
services sector),and national treatment for investors
(particularly regarding market access and government
procurement). AUSTR Novelli addressed all of their concerns,
but notable in its absence was the failure by the business
community to raise the Agency issue ) their real source of
concern.


US BUSINESS COMUNITY ENTHUSIASTIC
--------------


9. (U) The American business communities in the UAE expressed
optimism over the potential FTA, and reiterated many of their
previously expressed complaints about the UAE, particularly
in regard to agencies requirements. They also noted the need
for a legal framework to protect U.S. companies as part of
the FTA. Several company representatives expressed skepticism
that the UAE would ever do away with Agency stipulations and
the 51/49 percent ownership requirements of the Companies Law.


10. (U) This cable has been cleared by AUSTR Novelli.
SISON