BAHRAIN FTA: FULL SPEED AHEAD DESPITE PROTESTS

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 000038 SIPDIS STATE FOR NEA/ARPI BERNS STATE PLEASE PASS USTR BUNTIN COMMERCE FOR ITA/MAC/ONE LOUSTAUNAU AND HOFFMAN GENEVA FOR USTR E.O. 12958: DECL: 01/05/2015 TAGS: ECON ECIN ETRD PREL BA SUBJECT: BAHRAIN FTA: FULL SPEED AHEAD DESPITE PROTESTS FROM SAUDI ARABIA REF: A. MANAMA 0024 ¶B. 04 MANAMA 1814 Classified By: Ambassador William T. Monroe for reasons 1.4 (b) and (d). ¶1. (C) Summary. GOB officials were quick to defend their right to sign an FTA with the United States after several news accounts cited Saudi Arabia's Finance Minister as saying his country would impose duties on re-exported foreign goods if the U.S.-Bahrain agreement was ratified. Youssef Hamoud of Bahrain's Ministry of Finance and National Economy said Bahrain had always understood that re-exporting U.S. goods to other GCC states would result in tariffs, and that Bahrain's primary goal was to increase foreign direct investment. He stated Saudi Arabia is feeling left out and urged Washington to support Saudi as it seeks to become a member of the WTO. Business leaders have told us they wish to push ahead with ratification as quickly as possible despite the Saudi reaction. End Summary. ¶2. (U) A January 4 Bahraini Gulf Daily News article cited Saudi Arabia's Finance Minister as saying his country would impose duties on foreign goods re-exported through Bahrain if "it put into effect a recently signed free trade agreement with the U.S." The UAE Gulf News also covered remarks by the Saudi Finance Minister on January 4 by citing the minister as saying, "unilateral preferential trade agreements signed by some GCC states with countries outside the council undermine the GCC and weaken its negotiating position." This echoes comments made by Saudi Foreign Minister Saud Al Faisal at the December 3 - 5 "Gulf Security Dialogue" conference in Manama (Ref B). ¶3. (U) GOB officials and representatives were quick to respond to the Saudi accusations. In a January 5 Gulf Daily News article, parliament member Abdulnabi Salman stated, "Article 31 of the GCC law regulating economic co-operation fully supports Bahrain's right to sign a bilateral agreement. (Bahrain) has every right to ratify the agreement and I urge members of the parliament and Shura Council not to be influenced by others who try to stop the deal." On January 5, the Bahrain Tribune cited an unnamed official claiming "five of the six GCC countries have agreed that after the refusal by the U.S. of collective negotiations with the GCC bloc, the members could go ahead with bilateral negotiations in order to ensure the common interests of the region. The accord to consider such conditions in free trade agreements between GCC states and the U.S. as exceptional was reached by the GCC financial and economic committee at its 66th meeting in Manama on December 18." ¶4. (C) Director of Economic Planning at the Ministry of Finance and National Economy Youssef Hamoud told Econoff on January 5 that Bahrain understood going into the negotiations that re-exporting U.S. goods to other GCC states would result in application of a tariff. He stated Bahrain signed the agreement to increase foreign direct investment, not to re-export goods tax free. He said there is misunderstanding and misquoting taking place in the newspapers. When asked to comment on the Saudi reaction, Hamoud stated it is understandable as they are feeling left out especially since Oman and UAE also plan to start FTA negotiations soon with the U.S. Hamoud urged Econoff to inform appropriate USG officials that Washington should support Saudi Arabia's bid to become a member of the WTO. ¶5. (U) Business leaders appear unfazed by the Saudi reaction. One banker told Econoff that a Saudi lack of economic liberalization could benefit Bahrain as foreign companies might be more apt to relocate to Manama from the eastern province. Other business representatives are urging immediate ratification of the FTA in order to get a head start on their neighbors in Oman and the UAE. ¶6. (C) Comment. Bahrainis from both the public and private sector reaffirm their commitment to proceeding expeditiously with ratification and implementation of the FTA. In fact, the King said so directly to the Ambassador January 3 (Ref A). However, they also want to do what they can to soothe their large neighbor to the west. Many Bahrainis have taken up a call for closer U.S. engagement with the Saudis on WTO accession, perhaps hoping that progress in Geneva will blunt Saudi Arabia's more local concerns. MONROE