Identifier
Created
Classification
Origin
06ABUDHABI192
2006-01-23 13:26:00
CONFIDENTIAL
Embassy Abu Dhabi
Cable title:  

READOUT ON WASHINGTON FTA INVESTMENT DISCUSSION

Tags:  ETRD ECON EFIN TC 
pdf how-to read a cable
VZCZCXRO8841
OO RUEHDE
DE RUEHAD #0192/01 0231326
ZNY CCCCC ZZH
O 231326Z JAN 06
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3188
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000192 

SIPDIS

SIPDIS

STATE FOR EB/TPP/BTA & EB/IFD/OIA
STATE FOR NEA, NEA/ARPI, NEA/PI
STATE PLS PASS TO USTR FOR DOUG BELL & SHAUN DONNELLY

E.O. 12958: DECL: 11/08/2015
TAGS: ETRD ECON EFIN TC
SUBJECT: READOUT ON WASHINGTON FTA INVESTMENT DISCUSSION

REF: ABU DHABI 72

Classified By: AMBASSADOR MICHELE J. SISON FOR REASONS 1.4 (b & d)

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000192

SIPDIS

SIPDIS

STATE FOR EB/TPP/BTA & EB/IFD/OIA
STATE FOR NEA, NEA/ARPI, NEA/PI
STATE PLS PASS TO USTR FOR DOUG BELL & SHAUN DONNELLY

E.O. 12958: DECL: 11/08/2015
TAGS: ETRD ECON EFIN TC
SUBJECT: READOUT ON WASHINGTON FTA INVESTMENT DISCUSSION

REF: ABU DHABI 72

Classified By: AMBASSADOR MICHELE J. SISON FOR REASONS 1.4 (b & d)


1. (C) Summary: We have reached out to Minister of Economy
Sheikha Lubna Al-Qasimi and Ministry of Finance and Abu Dhabi
Investment Authority contacts to get their thoughts on the
January 16-17 Washington discussions on the investment
chapter of the FTA and to urge them to keep up forward
momentum in the upcoming London rounds even as we discuss
these difficult issues. An employee of the UAE offsets group
has contacted us to ask whether the USG now wants to include
defense offsets in an FTA negotiation and gave us his
understanding that the U.S. had previously assured the UAEG
that defense offsets were not part of the FTA. Ambassador
and EconChief will meet with Minister of State for Finance
Dr. Khirbash on January 25 to review FTA issues. End Summary.


2. (C) Based on our understanding that the January 17
discussions in Washington on investment issues had not
resolved the apparent deadlock on ownership of natural
resources, we contacted the Ministries of Economy and Finance
to discuss the matter and to encourage the UAE negotiators to
exercise the maximum possible flexibility. On January 20,
Ambassador discussed the talks with Minister of Economy
Sheikha Lubna Al-Qasimi. Sheikha Lubna, who had just
returned from a trip to India, told Ambassador that she had
not yet been briefed fully on the results of the Washington
talks. However, she said that her concern was that neither
side would have enough time before the upcoming January
30-February 1 London negotiating round to modify its
position, and that she did not want to lose momentum on other
negotiating issues. Ambassador urged her to keep up the
positive momentum on the negotiations even as we sought open
and frank discussion of the issues. Sheikha Lubna expressed
concern that the natural resources issue would prove to be a
"deal breaker." Ambassador reiterated USG desire to find an
approach that would address UAEG concerns that was consistent

with the basic premise of our bilateral FTAs -- that all
sectors are within the scope of the agreement (subject to
narrow exceptions). Sheikha Lubna also raised the question
of defense sector inclusion within an FTA (see also Para 6).


3. (C) On January 21, econchief called MinFin A/US for
Revenue and Budget Khalid Al-Bustani to talk about the
Washington investment chapter discussions. Al-Bustani, who
attended the Washington talks, said that the discussions had
in part foundered on the UAE's insistence that an FTA needed
to exclude natural resources. He explained that the UAE
viewed natural resources (i.e., oil and natural gas) as a
national security issue, and that the UAE negotiator's
instructions to carve natural resources out of the FTA came
from the "highest authorities." He also reiterated that
natural resources belonged to the individual emirates rather
than the federal government and specified that the
instructions came from the Emirate of Abu Dhabi, which owns
over 94% of the oil and gas reserves in the UAE. (Note:
Al-Bustani's comments about the negotiating instructions to
"carve out" natural resources coming from the highest levels,
specifically from the emirate of Abu Dhabi, track with what
Minister of Information and Abu Dhabi ruling family member
Sheikh Abdullah bin Zayed Al-Nahyan told A/S Tony Wayne on
January 6 --reftel. End Note.)


4. (C) Al-Bustani noted that the UAE was willing to discuss a
side-letter arrangement to carve out natural resources and
was willing to work on the language with the USG, but stated
that the U.S. side was -- as a matter of principle -- unable
to discuss the exclusion of natural resources from the FTA.
In response to Econchief's question about the UAEG's
resistance to including investor state dispute settlement
provisions in the FTA, Al-Bustani said that this objection
was tied closely to the issue of ownership of natural
resources. He opined that, if natural resources were carved
out, it would be easier for the UAE to accept investor state
dispute settlement. Al-Bustani stressed that the UAE was not
trying to block foreign investment in the oil sector --- and
indeed allowed upstream investment under concession
agreements. Rather, he said, UAE concern was about ownership
of a strategic resource. He told Econchief that he thought
the oil companies currently participating in the upstream oil
sector were happy with the situation and urged econchief to
ask them if they wanted natural resources included in an FTA.
Al-Bustani said that he had met with AUSTR Donnelly after
the discussions and that Donnelly had told him that if this
was an area where the two sides could not reach agreement in
the end, they might need to agree to "go their separate
ways." Al-Bustani said that he thought that this
characterization was "too strong" a response and that both

ABU DHABI 00000192 002 OF 002


sides needed to go back to consult with their respective
leadership. He said that the UAE was committed to moving
forward on the negotiations and that now the discussions were
centering on resolving the "tough issues." Finally
Al-Bustani said that he appreciated all of the work USTR had
done in setting up the meetings to address the UAEG's
concerns such as tax and security of assets.


5. (C) On January 23, Econchief discussed the Washington
talks with Abu Dhabi Investment Authority (ADIA) tax advisor,
Dr. Robert Peake (protect) for his thoughts on the Washington
discussions. Peake said that the real "delicate area" had
been the issue of natural resources, confirming that UAE
negotiators' mandate was to exclude natural resources from
the FTA. Peake said that he hoped the issue would be
solvable, but that it would take some creative thinking. He
noted that there was precedent for excluding natural
resources in trade agreements and stressed that the issue for
the UAE was not access, since the UAE already was very open
to foreign investment in the oil sector, but ownership and
control over the resource. Econchief explained that the
U.S.' basic premise of an FTA was that all sectors would be
included (subject to narrow exceptions). Econchief noted
that the exception for PEMEX granted in NAFTA was 15 years
old and that our more recent FTAs do not exclude whole
sectors.


6. (SBU) On January 21, an employee of the UAE Offsets' group
contacted econchief to say that he had been approached by the
UAE negotiators to prepare a paper explaining why defense
offsets should not be included in an FTA. He told econchief
that he distinctly remembered that former AUSTR Catherine
Novelli had clearly stated that the FTA would not include
defense sales during her meetings with the Abu Dhabi Chamber
of Commerce and U.S. businesses. He asked whether that
position had changed or if there was some sort of
misunderstanding on the part of the UAE negotiators.
Econchief promised to look into the issue.
SISON