AMERICANS AND EMIRATIS HIGHLIGHT POSITIVES OF FA,

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 000675

SIPDIS

STATE PASS USTR

E.O. 12958: DECL: 02/14/2015
TAGS: CVIS ECON ETRD PREL TC
SUBJECT: AMERICANS AND EMIRATIS HIGHLIGHT POSITIVES OF FA,
BUT NOTE CONCERNS

REF: DUBAI 506

(U) Classified by DCM Richard A. Albright, reasons 1.4 (b)
and (d).


1. (SBU) Summary: State Department Special Representative
for Commercial and Business Affairs Frank Mermoud supported
our strong commercial relationship and highlighted how a free
trade agreement would enhance trade and investment during his
January 29-31 visit to the UAE. His interlocutors expressed
optimism at the opportunities of a Free Trade Agreement
between the U.S. and the UAE, but articulated concerns on
specific points. Major areas of concern for American
businesses remain the Agency and Companies Laws, property
ownership, and broader issues of enforceability and
transparency. Emirati business leaders focused on potential
changes to the legal framework that have long supported UAE
nationals, particularly the Agency and Companies Law, and
their concerns about whether changes to the law will apply to
only American companies or be a blanket change. End Summary.


2. (U) Special Representative Mermoud discussed trade
liberalization with UAEG officials and U.S. and UAE business
representatives during his January 29-31 visit in Abu Dhabi
and Dubai. He met with Chairman of the Abu Dhabi Department
of the Economy, Sheikh Hamed bin Zayed; Ministry of Economy
Assistant Under Secretary for International Cooperation,
Abdullah Al-Saleh, Mubadala COO and Abu Dhabi Executive
Committee Member, Khaldoon Al-Mubarak, Director General of
the Abu Dhabi Chamber of Commerce Mohammed Abdullah, and a
number of U.S. and Emirati business representatives.

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UAE Perspectives on FTA
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3. (SBU) Chairman of the Abu Dhabi Department of Economy
Sheikh Hamed bin Zayed al-Nahyan (a younger half-brother of
UAE President Sheikh Khalifa) emphasized the UAE,s
commitment to a bilateral FTA. He cited the example of the
long stalled GCC-EU trade agreement negotiations as an
example of the difficulty of achieving agreements with the
GCC. Sheikh Hamed told Mermoud that the UAEG had asked the
Europeans to abandon the GCC-EU process in favor of bilateral
approaches with GCC countries. (Note: French DCM confirmed
to DCM February 1 that the UAEG had approached France, UK and
Germany with this request. End note.).


4. (SBU) Both public and private sector Emiratis saw an FTA
as an &opportunity, and not a threat,8 however they voiced
some concerns about the impact of a repeal of Agency and
Companies Laws. Although many Emiratis said they were
willing to do this for American companies (even though some
people would be adversely affected by this decision),they
expressed opposition to repealing these laws for all foreign
companies. In particular, Emiratis expressed security and
economic concerns if Indian or Pakistani companies (which are
the two largest expatriate groups in the UAE) were able to
operate independently of an Emirati partner since they could
quickly dominate the local economy.


5. (SBU) Abu Dhabi Chamber of Commerce Director General
Mohammed Omar Abdullah commented that an FTA would bring
long-term benefits to the UAE. He was more concerned about
the immediate impact on UAE businesses, since the largest
markets for Emirati businesses lie in Asia or other GCC
countries, and production capacity in the UAE is limited. He
stressed that the UAE would need to plan how to take full
advantage of the opportunity afforded by the FTA. Khaldoon
Al Mubarak, COO of Mubadala Development and a member of the
Abu Dhabi Executive Council, was enthusiastic about being a
partner to the USG and US private sector since they have had
historically good working relationships with US companies. A
Mubadala subsidiary, Liwa Petroleum, recently partnered with
Occidental Petroleum (one of its Dolphin partners) to win 9
of 15 exploration blocks in Libya. Liwa Petroleum is a 10
percent minority partner with Oxy.


6. (C) Assistant Under Secretary for International
Cooperation at the Ministry of Economy and Planning, Abdullah
Al Saleh (protect),noted that the UAE was already engaged in
a step by step process to liberalize sectors of the economy
by privatizing and allowing greater foreign investment and
ownership, for example. He said that he thought the UAE
would be able to open up most sectors to American businesses,
but stressed that some sectors, such as energy, would be much
more difficult for the UAE to liberalize. However, he noted
that while the individual emirates retain ownership of the
energy sector, the UAE has historically entered into
production sharing agreements with foreign partners.
Al-Saleh stated that the UAE is already opening up the
insurance sector and noted that he thought the U.S. companies
could have more access to the medical services sector, but
that the UAE would not want to open that sector up completely
to other countries, such as India.

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American Perspectives - FTA Should Resolve Agencies Law
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7. (SBU) While enthusiastic about the prospect of a Free
Trade Agreement, local American businesspeople in Abu Dhabi
and Dubai told Mermoud about specific issues they wanted to
see addressed. They raised the most concern about the Agency
and Companies laws. While some companies are happy with
their Emirati sponsors or agents and would choose to keep
them, many Americans noted that UAE law and practice made it
almost impossible to terminate an agency relationship with a
non-performing sponsor. A concern for some companies with
high levels of intellectual property was the potential that
an Emirati partner who controlled 51 percent of the business
in the UAE could gain access to their trade secrets.

8. (SBU) American businesspeople also expressed concern
about inability to own property. In the context of
industrial property, one American compared it to &building
on quicksand8 since a company cannot own its factories or
other physical plants. For companies with a long term
presence, steadily rising rents are becoming a major cost.


9. (SBU) Another U.S. business concern is the issue of
enforcement mechanisms, and transparency. Several people
raised concerns that amending laws and regulations would not
remedy problems unless there are sufficient enforcement
mechanisms and political will to carry them out.
Specifically, they questioned whether close personal
relationships among Emirati business leaders would continue
to trump legal rights. U.S. businessmen cited cases where
&personal contacts8 among Emiratis resulted in stopping or
delaying payment on an irrevocable letter of credit.

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Abu Dhabi Investment Plans
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10. (SBU) Sheikh Hamed also discussed Abu Dhabi,s
development and privatization plans, emphasizing his view
that the region needs economic reform before political
reform. He stated Abu Dhabi,s privatization strategy is to
develop strategic industries that produce intermediate
products such as steel, aluminum, and chemical products. Abu
Dhabi plans to privatize small and medium companies (under
the Sheikh Khalifa Program for small and medium enterprises)
which could then utilize the products from the strategic
enterprises. He also stated a commitment to privatizing the
services sector and projects involving businesswomen in this
second stage of development. Abu Dhabi also plans to
introduce public and private partnership schemes. They have
begun a pilot program to encourage international investment
in the construction industry using a Build-Own-Operate model.


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Visas
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11. (SBU) Both Emiratis and U.S. businesses took advantage
of Mermoud,s visit to raise concerns about visas and
treatment in the U.S. The US educated CEO of the Abu Dhabi
Securities and Commodities Authority said he had hoped to
send his son to Harvard, but his son was insisting on
studying in Australia which he saw as a more welcoming
environment for Arab students. Several U.S. business
representatives stressed that they were losing business
because their Emirati colleagues perceived the visa and
border process as time-consuming and difficult. Mermoud
stressed that the President was aware of the problem and had
instructed US agencies to improve our visa procedures while
protecting homeland security. He noted that the process has
improved considerably over the past two years.

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Taxes
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12. (U) U.S. businesses also argued for a continuation of
the Foreign Earned Income Exclusion. They argued
passionately that repealing this exclusion would only serve
to assist other countries, which do not tax their
expatriates. They explained that American workers overseas
are excellent promoters of U.S. products and responsible for
exports. Unfortunately, many Americans are being priced out
of the market. Repealing the exemption will only exacerbate
the problem, they said.
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Comment
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13. (SBU) Overall, all parties were optimistic about the
possibilities of a Free Trade Agreement for boosting trade
and investment between the U.S. and UAE. Some individuals
expressed concerns about specific clauses of an FTA that
could impact their interests. Mermoud,s visit served to
raise the profile of the FTA, in a positive way, in advance
of the upcoming negotiations.
SISON