UAE MAKING PROGRESS ON FTA ISSUS OVER SUMMER

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 003436

SIPDIS

STATE FOR EB/TPP/BTA AND EB/IFD/OIA
STATE FOR NEA/ARPI
STATE PASS USTR FOR DOUG BELL

E.O. 12958: DECL: 08/05/2015
TAGS: ETRD ECON EFIN TC
SUBJECT: UAE MAKING PROGRESS ON FTA ISSUS OVER SUMMER


Classified By: Ambassador Michele J. Sison for reasons 1.4
(b & d).


1. (C) Summary: The UAEG continues to make progress on FTA
issues over the summer months. The UAE Rules of Origin
Committee announced a set of conditions that companies would
need to comply with in order to have a good classified as
"made in the UAE." According to MinFin's Saeed Al-Rukn,
these rules were designed with the U.S.-UAE FTA negotiations
in mind. Al-Rukn explained that the rules are not yet
finalized and he would have more clarity in September. Abu
Dhabi Investment Authority representatives told econchief
that they were still concerned about several issues including
federal-emirate jurisdiction, security of assets, taxation,
and investor state dispute settlement. They remained
confident, however, that these issues could be worked out if
experts on both sides met to discuss them. End Summary.

Sheikh Abdullah Hears our Concerns
--------------


2. (C) During a July 24 meeting with Minister of Information,
Sheikh Abdullah bin Zayed Al-Nahyan (AbZ),Ambassador briefly
discussed the ongoing FTA negotiations and highlighted
several issues for his attention. AbZ has been one of the
senior UAEG leaders active on FTA issues. Ambassador
stressed that the UAEG's interest in a "movement of persons"
or visa chapter in the FTA was unacceptable to the USG.
Sheikh Abdullah seemed to accept this. On the issue of
rights of association and labor unions, and on the issue of
Federal-Emirate jurisdictional breakdowns, Sheikh Abdullah
didn't comment, but took the information on board.


"Made in UAE" 40% Local Content Needed
--------------


3. (U) On July 24, the UAE press reported that the UAE Rules
of Origin Committee had decided (pursuant to various FTA
negotiations) on a set of conditions for classifying a
product as a local product. The good needed to be locally
obtained, or for goods made by imported materials, the
product needed to be substantially transformed (i.e., there
would be a change in the harmonized tariff code),and the
value added in the UAE needed to be at least 40 percent. The
press also reported that the Rules of Origin Committee had
agreed on standardizing the forms needed to certify the local
content rule.


4. (SBU) Econchief called Saeed Al-Rukn, Deputy Director of
the Department of Industrial Development at the Ministry of
Finance and Industry on July 24 to discuss the newspaper
reports. Al-Rukn confirmed that the committee had based its
decision on the U.S. FTA requirements, and confirmed that it
would serve as the UAEG's model for future FTA negotiations.
He stressed that the committee had consulted with UAE
industry before making its decision and that the UAEG was
trying to be fair to its "clients" (i.e., UAE industry) and
with its negotiating partners. On August 2, Al-Rukn provided
econchief with further details on the decision. He explained
that the UAE wanted/needed to include indirect costs in the
calculation of the 40 % UAE value added, which he understood
could be problematic for the U.S. He said, however, that he
thought that the U.S. would be interested in an FTA that was
flexible enough to meet the needs of both parties. Al-Rukn
concluded by noting that the UAEG was still meeting with the
relevant actors on the proposed rules and that he hoped to
have more clarity by early September as his colleagues
returned from vacation.


5. (SBU) Al-Rukn also said that the UAE Ministry of Finance
had gotten approval from Dr. Khirbash to create a software
application and process for companies to register and submit
their applications for rules of origin paperwork. He
explained that this program would help the UAEG to track
whether goods were substantially modified in the UAE and met
the 40% value added requirement.

Lost in Translation
--------------


6. (C) Al-Rukn also highlighted some problems the UAE had had
in translating the USG's draft text. He said that Ali
Al-Baloushi, the head of the UAE's Copyright Department, had
asked him to review part of a chapter dealing with licensing
companies that produce optical media (CDs etc.). Al-Rukn
said that the English language text was unobjectionable and
provided that companies could not be established to make
compact disks without receiving an appropriate license. The
Arabic translation, however "prohibited" the UAEG from
granting a company a license to make compact disks. Al-Rukn
said that he had urged Al-Baloushi to show the texts to his
legal advisor for comment. He noted that, in some cases, the
UAEG's translators were not specialists and that they
sometimes translated the text "word for word" rather than
translating its meaning. (Note: This is the first specific
example of a mis-translation in the Arabic text of the FTA
that we have heard of. Negotiators should be aware, however,
that communication difficulties can and will slow
negotiations as the UAEG negotiators try to ensure that they
fully understand the meaning of the negotiating documents.)

Emirate-Federal Jurisdiction still a Concern
--------------

7. (C) On July 26, two senior Abu Dhabi Investment Authority
advisors (strictly protect) discussed progress on the
investment and financial services chapters of the FTA with
econchief. Both noted that ADIA remained concerned about
Federal-Emirate jurisdictional issues, security of ADIA
assets in the U.S., tax issues, and the investor-state
dispute mechanism. (Comment: ADIA is the investment arm --
and checkbook -- for the Emirate of Abu Dhabi. As the
Emirate of Abu Dhabi largely funds the UAE federal
government, ADIA is -- ultimately -- a source of funds for
the UAEG. ADIA operates under a very restrictive need to
know definition of security and "need to know" does not
generally include the UAE federal government. End Comment.)
The senior legal advisor explained that ADIA had had some
excellent initial meetings in Washington during the May round
to discuss several of these issues. He said that he had
looked forward to going to Washington to continue those
discussions, but that the Ministry of Finance had rejected
that idea. (Note: According to MinFin A/US Khalid
A-Bustani, the UAEG did not want a sub group negotiating,
without the entire group present.) Due to the complexity of
the issues (and to ADIA's general penchant for secrecy --
even from UAEG officials) he said ADIA was not prepared to
discuss them in any detail over a videoconference. The legal
advisor reiterated that he thought the issues could be
resolved if a key group of people from each side discussed
them in detail.


8. (C) The senior legal advisor explained that he thought
the Ministry of Finance would present an updated (ADIA
drafted) side letter on the issue of Federal-Emirate
jurisdiction and that this letter reflected the UAEG's best
understanding of how this issue was handled in past GATT/WTO
discussions. (Comment: When the UAEG presents this side
letter, USTR might want to suggest that a group of experts
visit the U.S. to discuss specific concerns with all of the
relevant USG agencies. The group could then report back to
the negotiating teams, so this would not be a "negotiation.")
SISON