MIM DEPUTY MINISTER LOOKS BACK TO THE FUTURE

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002716

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/26/2016
TAGS: ECON EINV ETRD KPRV POL PREL IZ
SUBJECT: MIM DEPUTY MINISTER LOOKS BACK TO THE FUTURE

Classified By: EconMinCouns Delare for reasons 1.4 (b) and (d).


1. (C) Summary: In a July 24 meeting Deputy Minister Sami
Araji of the Ministry of Industry & Minerals (MIM) said that
a new investment law should pass the Council of
Representatives (CoR) in September or October of this year.
He also said a draft privatization law is waiting for Council
of Ministers (CoM) action, but that he has already proposed
the CoM approve privatizing state-owned enterprises (SOEs)
under existing laws. He argued that "rehabilitating" other
SOEs prior to privatization will serve a number of useful
purposes: maintaining income for present employees for the
immediate future and boosting the value of the properties to
increase their sales price. He noted that the GOI is
examining how other Arab nations deal with enforcement of the
Arab League boycott in order to avoid "hurting their own
development" by excluding foreign firms entering their
markets. He also noted that it might take three years for
Iraq to complete the WTO accession process. End summary.

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DRAFT GOI INVESTMENT LAW
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2. (SBU) New Econ Deputy and Econoffs called upon Dr. Sami
Araji of the Ministry of Industry & Minerals (MIM) to follow
up on earlier discussions with MIM during the visit of
Secretary of Commerce Gutierrez. Dr. Sami fully supports the

SIPDIS
Investment Law currently in the CoR as key to developing the
private sector, improving economic growth, and creating jobs.
He added that the law will provide rights or guarantees to
"strategic" investors who are interested in doing business in
Iraq. He predicted that the investment law would pass by
October.

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STATE-OWNED FIRMS: WHY PRIVATIZE WHEN YOU NEED TO CREATE JOBS?
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3. (C) Dr. Sami said he fully supports transitioning Iraq to
a private-sector economy, but described Iraq's public sector
as the best creator of jobs right now because the private
sector is still "too weak." He stressed the need to
"rehabilitate" the MIM's SOEs to get people working
(including people fired from SOEs by Saddam),to increase the
value of the SOEs, and to stimulate Iraq's economy. He
believes the GOI would need $2 billion for this task and said
that he was in discussion with the Ministry of Finance (MoF)
to enable Iraqi banks to provide these funds, although he
noted that the MoF has a great many problems itself now.


4. (C) When queried about privatizing Iraq's SOEs, Dr. Sami
said that a draft privatization law was submitted to the CoM
in March of this year, but the CoM has not acted on it. As
part of the draft law, he said the GOI would retain at least
15% ownership in each privatized SOE, to be sold on the stock
market at an opportune time. The remainder of each SOE would
be sold to a strategic investor (45%) (who could be a foreign
investor),other interested investors (25%),and SOE
employees (15%). It is unclear why MIM wants to maintain 15%
ownership in its SOEs. When queried on this late last year,
Taha I. Mohammad, advisor to the Minister at MIM, said: "The
public is not ready for the government to completely exit the
scene yet." The reality is more likely that the MIM is not
ready to completely relinquish control in Iraq's economy.


5. (C) Dr. Sami related that in October 2005 he had proposed
to the Council of Ministers (CoM) of the time that nine SOEs
be privatized under law #22, but that the CoM failed to act
for "political reasons." He has therefore resubmitted the
proposal to the present CoM and hopes it will act. (Note:
Though Dr. Sami is comfortable with Law #22, we believe it
lacks a transparent process for privatization and an
internationally accepted method for valuing Iraq's SOEs.
Privatizing under existing Iraqi law could open the door to a
corrupt process, something we have repeatedly told relevant
Iraqi interlocutors. End note.)

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ARAB LEAGUE BOYCOTT
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6. (C) Econoffs also called Dr. Sami's attention to the
problems the Arab League Boycott (ALB) has created for
foreign investors trying to enter Iraq. He was aware of
Pepsi's problems inhibiting its investment plans. Econoff
noted that ABRO Industries has also been unable to register
its trademarks with the MIM's Trademark Office. (Both U.S.
companies have been unable to receive their trademark
certification because the Trademark Office at the MIM asked
them to sign an Arab League Boycott declaration as part of
their registration.) The Deputy Minister responded with a
standard GOI answer, namely that the GOI is working on the

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issue, and that the CoM will conduct a "review" on how other
Arab countries handle the problem to ensure foreign
investment and trade does not suffer. Dr. Sami did flag,
however, the importance of protecting intellectual property
rights as a requirement for Iraq in its efforts towards WTO
accession.

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ANTI-DUMPING LEGISLATION AND WTO ACCESSION
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7. (SBU) Regarding Iraq's progress towards WTO accession,
Dr. Sami Araji predicted that it would take Iraq three years
to complete the process, but noted this observation was just
his personal opinion. He also brought up anti-dumping
legislation that he said is with the Council of Ministers for
review as a necessary measure to protect Iraq from other
countries that may want to dump cheap products on the Iraqi
market. Dr. Sami raised several times the need to "protect
the Iraqi investor."

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COMMENT
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8. (SBU) In this latest discussion, Dr. Sami reprised the
points he made to Commerce Secretary Gutierrez during his
recent visit. As should be evident, there is little interest
at MIM in disrupting the job creation machinery of the SOEs
-- even as uncompetitive and uneconomic as they are. We are
left puzzled as to whether he really believes foreign
investors could be enticed to "rehabilitate" Iraqi SOEs under
the sort of terms for "privatization" that he has put
forward. EconCounselor recently observed to him that he
appeared to be intent on following some of the worst models
of East European experience as he wrestled with
privatization. To that Dr. Sami answered that they would
avoid the mistakes made by the Russians. Our verdict:
little vision at MIM. Pressure for change will have to come
from other sources. Regarding ALB, we are being kept in a
holding pattern. Given the current international situation,
our interlocutors simply see this issue as radioactive --
even if they are persuaded as to the harm that continuing
adherence to boycott measures may be doing to beneficial
investment and trade prospects.
SCOBEY