CONGRESSIONAL STAFFERS SEE UAE INTEREST IN FTA

UNCLAS SECTION 01 OF 03 ABU DHABI 002528

SIPDIS

SENSITIVE

STATE FOR NEA/ARPI, EB/TPP/BTA, H
STATE PASS USTR FOR NOVELLI AND BELL
GENEVA FOR LABOR ATTACHE
STATE PASS FEDERAL RESERVE

E.O. 12958: N/A
TAGS: ETRD ECON ELAB OVIP OREP TC FTA
SUBJECT: CONGRESSIONAL STAFFERS SEE UAE INTEREST IN FTA


1. (SBU) Summary: A group of eight House and Senate staffers
visited the UAE from May 28 to June 1 at the invitation of
the UAEG to discuss FTA issues. UAEG interlocutors stressed
the close relationship between the U.S. and the UAE and their
interest in a mutually beneficial FTA. Information Minister
Sheikh Abdullah bin Zayed Al-Nahyan stressed the UAE's
commitment to strong bilateral relations. The UAE Minister
of Economy and Central Bank Governor both described the size
and complexity of the UAE economy (the second largest in the
Arab world, according to the Governor) and noted that the UAE
is pursuing a number of FTA negotiations, both as a member of
the GCC and bilaterally. The Minister of Economy highlighted
the actions that the UAE is taking to end the use of underage
children as camel jockeys and discussed her efforts to revise
the Commercial Companies law. U.S. businesses expressed
their hope that the FTA would resolve a number of
longstanding concerns. End Summary.


2. (U) A group of eight House and Senate staff members
visited Abu Dhabi and Dubai from May 28 to June 1 to discuss
the ongoing U.S. - UAE Free Trade Agreement (FTA)
negotiations. (Dubai meetings reported septel.) The UAEG
and U.S. based Clark & Weinstock (the lobbying firm hired by
the UAEG to promote the FTA) organized the trip. Staffers
met with Minster of Economy and Planning Sheikha Lubna
Al-Qasimi, Central Bank Governor Sultan Nasser Al-Suwaidi,
MFA U/S Abdullah Rashid Al-Noaimi, and Mubadala CEO (and Abu
Dhabi Executive Council Member) Khaldoon Al-Mubarak.
Information Minister Abdullah bin Zayed Al-Nahyan (ABZ)
hosted a luncheon for the delegation. Embassy also organized
a business roundtable and a reception for the delegation.
The NODEL delegation consisted of:

-- Brooks Kochvar, Chief of Staff to Congressman Chocola (R -
Indiana);
-- Josh Winegarner, Policy Advisor to Senator Cornyn (R -
Texas);
-- David Stewart, Legislative Director to Congressman English
(R - Pennsylvania);
-- Mark Powden, Senior Policy Advisor to Senator Jeffords (I
- Vermont);
-- Jeff McNichols, Policy Advisor to Congressman Kline (R -
Minnesota);
-- Jim Stowers, Legislative Director for Senator Lincoln (D -
Arkansas);
-- Debra Marshall, Dep. Chief of Staff/Legislative Director
to Congressman Upton (R - Michigan);
-- Sophia King, Legislative Director to Congressman Meeks (D
- New York);
-- Jeff Donald with the Business Council for International
Understanding;
-- Chuck Dittrich with the National Foreign Trade Council;
and,
-- Reem Al-Hashemi and Hajar Al-Awad with the UAE Embassy to
the U.S.

U.S. - UAE Relationship Good: Getting Closer
--------------


3. (SBU) The UAEG interlocutors emphasized the close and
cooperative U.S. - UAE relationship. ABZ stressed the
strategic importance of the relationship with the U.S. MFA
U/S Al-Noaimi showed the staffers a copy of the U.S.-UAE
strategic partnership document, which he noted, helped codify
the cooperation in areas ranging from the fight against
terrorism to the efforts to stabilize Iraq or Afghanistan.
He emphasized that the U.S. and the UAE could work together
on mutual interests across the board with "no limits" as long
as both sides worked on moving the relationship forward.
Most of the UAEG officials noted that the FTA should be seen
in the light of expanding and deepening the bilateral
relationship.

The UAE wants a mutually beneficial FTA
--------------


4. (SBU) Both Governor Al-Suwaidi and Sheikha Lubna
emphasized the scale and diversity of the UAE economy.
According to Al-Suwaidi, the UAE,s economy is now the second
largest in the Arab world (behind Saudi Arabia) and larger
than that of Egypt. (Note: Official UAE economic statistics
for 2004 are not yet publicly available. The Economist
Intelligence Unit estimates that the UAE's GDP is $89.7
billion, about $13 billion larger than its estimate for
Egypt.) Given the rapid growth in the economy and its
diversification -- crude oil production represents between
25-32% of GDP -- Sheikha Lubna pointed out it would be a
mistake and an oversimplification to treat the UAE like other
GCC economies. She said that the UAE,s economy, as a trade
based economy, was closer to that of Singapore than it was to
its neighbors. In fact, she noted, the UAE was the third
largest re-export center in the world. The UAE, she added
had always had a regional focus, which ) along with the
tolerant multi-cultural environment and excellent
infrastructure -- made it an attractive place for U.S.
companies to base their regional offices. Khaldoon
Al-Mubarak, the CEO of the Emirate of Abu Dhabi,s investment
and development company Mubadala reemphasized this point,
noting that Mubadala actively sought partnerships with
top-quality international firms, especially those that would
be investing in the UAE.


5. (SBU) Sheikha Lubna told the staffers that the challenge
was to negotiate an FTA that met the needs of both parties.
Both sides needed to take into account the other's important
concerns. The UAE, she said, is currently running a trade
deficit with the U.S. Emiratis are interested in the
investment potential of the FTA. Just as U.S. businesses are
interested in investing in the UAE (and UAE businesses are
interested in partnering with them),UAE businesses are
interested in investment opportunities in the U.S. She
noted, however, that certain U.S. policies (such as
complicated bank regulatory regimes) could serve as barriers
to entry for UAE financial institutions.


6. (SBU) Sheikha Lubna briefly described the UAE,s global
trade strategy. She explained that the UAE looked beyond
the UAE to the region as a whole. By virtue of its sea/air
connections, the UAE was targeting the countries of the
former Soviet Union as trading partners. In fact, Sheikha
Lubna stated, the UAE could transship goods (via sea-air
links) more cheaply than could be transshipped through
Western Europe. She said that that the UAE was following a
three-pronged international trade strategy. First, it was a
WTO member and participated in the WTO process. Second, as a
member of the GCC, it was negotiating FTAs with the EU,
Pakistan, India, and would be starting with China. The UAE
was negotiating bilateral FTAs with the U.S. and Australia
and planned to negotiate with Singapore.


Camel Jockeys and Labor
--------------


7. (SBU) ABZ emphasized UAEG commitment to end the
trafficking in underage camel jockeys. Sheikha Lubna quickly
highlighted two problems that the USG had identified in the
context of the FTA: the use of underaged camel jockeys and
rights of association for laborers. She explained the UAEG's
commitment to enforcing the legal ban on camel jockeys under
16 years of age and 45 kilos and its work with UNICEF on
rescue, identification, rehabilitation, and repatriation.
She noted that the UAEG was concerned about the international
nature of the crime of smuggling and wanted to be sure that
it didn't repatriate children, only to have them trafficked
to another country. According to Sheikha Lubna the
"principal Sheikhs" were setting up a system to ensure that
the children would be cared for, so that they would not just
be sent back to poverty. Sheikha Lubna also tried to put the
overall UAE labor situation in context. She noted that the
UAE had ratified six of eight ILO conventions on Labor (as
opposed to the two that the USG had ratified). She explained
that 80 percent of the UAE's population was expatriate, and
that most laborers were transient. She also noted that the
UAE had legal protections in place to protect workers rights
and added that the UAE was not seeing the decline in foreign
labor that one would expect if there were serious labor
problems. On the contrary, she noted, the UAE population was
rapidly increasing, largely due to an influx of foreign
workers. She acknowledged that laborers had problems in the
UAE, largely with delays of payment, but explained that
workers could -- and did -- approach the Ministry of Labor to
resolve issues.

U.S. Companies: Want the FTA to Resolve Concerns
-------------- ---


8. (SBU) During an Embassy organized business roundtable,
U.S. firms stressed their interest in using an FTA to resolve
issues affecting their operations. They also stressed,
however, that the UAE was a "tolerant, peaceful, oasis" in
the Middle East and that the UAEG had a genuine desire to
improve trade. An FTA with the UAE, they emphasized would
serve as a positive impact on the region and contribute to a
"virtuous circle" of economic reform. The business
representatives highlighted a number of concerns including:
the Commercial Companies law, the Agencies law, difficulties
in resolving commercial issues in an opaque court system, IPR
enforcement, and the need to ensure that the UAE didn't pick
European technical standards and exclude U.S. standards.


9. (SBU) During her meeting, Sheikha Lubna briefly discussed
her efforts to reform the Commercial Companies law. She
stated that the law would change and she hope to have it
resolved before an FTA were implemented. She explained that
she was working on the redrafting with the Abu Dhabi and
Dubai economic departments. She explained that any law would
need to be ratified by the Emirates before it could become a
law. By working with the two key emirates, during the
initial stages, she was trying to ensure that it made its way
through the ratification process more easily.

Investment/Economic Growth and Inflationary Concerns
-------------- --------------


10. (SBU) The Governor and Sheikha Lubna briefly discussed
the make up of the UAE economy. Despite record high oil
prices, manufacturing, tourism, and financial services are
all important sectors of the economy and projected to
continue growing in importance. The governor noted that the
number of annual visitors to the UAE, at approximately 6
million, was around one and one half times the size of the
UAE population. He also noted that the UAE has a large and
active regional financial center, which processes half of the
SWIFT electronic financial transfers in the GCC. The UAE is
also a major regional investment destination. In 2004, net
investment flows from the GCC were $11 billion (over 10% of
GDP). Governor Al-Suwaidi briefly discussed the rapid growth
in the UAE financial system in 2004, which he acknowledged
was an exceptionally good year. According to the governor,
both deposits and loans and advances grew by around 30% in

2004. Banking stem profitability had grown by about 40%.


11. (SBU) The sharp increase in funds flowing to the UAE (and
a 25% increase in public sector salaries for Emiratis and 15%
for expatriates) is increasing inflationary pressures. In
response to a question from one of the staffers, Governor
Al-Suwaidi acknowledged that he was concerned about asset
price bubbles in the property and stock markets. Although,
Al-Suwaidi stressed that the UAE was an attractive investment
destination, he pointed out that the stock market had almost
doubled in 2004 and was up by about 50% in the first 6 months
of 2005. He explained that the decentralized decision making
nature of the UAE (with each emirate responsible for its own
development strategy) increased competition, but also made it
more difficult for the Central Bank to rein in unproductive
actions by individual emirate governments. Al-Suwaidi
commented that he was trying to work with the Emirate
governments to engineer a soft landing, but joked that this
was notoriously difficult. One action the central bank had
taken to try and &let a little air out of the stock market
bubble8 was to punish four banks that exceeded Central Bank
rules stipulating that banks could not lend investors more
than five times their collateral to invest in IPOs. Most
observers believe that easy financing exacerbated the
oversubscriptions to recent IPOs.
SISON