CHAIRMAN OF COUNCIL OF REPRESENTATIVE'S ECONOMIC

UNCLAS SECTION 01 OF 02 BAGHDAD 002738

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ENRG IZ POL
SUBJECT: CHAIRMAN OF COUNCIL OF REPRESENTATIVE'S ECONOMIC
COMMITTEE ON ECONOMIC REFORM: FUEL IMPORT LIBERALIZATION
AND INVESTMENT



1. (U) SENSITIVE BUT UNCLASSIFIED


2. (SBU) Summary: In a July 30 meeting, Dr. Haider Al Abadi,
Chairman of the Economic, Reconstruction and Investment
Committee (ERIC),discussed the questions being raised in the
CoR about the new Investment Law and the Fuel Import
Liberalization Law. He noted that some were concerned that
the Investment Law would bring too many advantages to
foreigners and the Fuel Import Liberalization Law would not
benefit Iraq,s many poor citizens. He also reviewed an idea
for the Iraqi government to promote investment by building
secure industrial areas for foreign investors to include
factories, offices, housing and schools with appropriate
physical security and guards. He welcomed further
discussions with Embassy officials in the future and was open
to new ideas. End summary.

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The Economic, Reconstruction and Investment Committee
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3. (U) In a cordial meeting with Econ Mincon and Econ Deputy
in his office, Dr. Abadi began by noting that the CoR decided
to have one committee covering a wide range of economic
topics rather than separate Economic and Investment
Committees. The ERIC has 11 members. Mincon noted that the
call was to introduce Dr. Abadi to post,s economic section
and establish a channel for future open exchanges of views
and information on areas of mutual interest, emphasizing that
such interchanges are common between U.S. embassies and
legislatures around the globe. Abadi said that he looked
forward to such a relationship between the Committee and post.

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The Investment Law
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4. (SBU) Dr. Abadi had hoped that the CoR would pass the
Investment Law before the session ended July 30 but said that
Members wished further discussion, so the first reading was
all that could be accomplished. (Note: Deputy Prime Minister
Barem Saleh apparently rammed the law through the ERIC. The
requirement in the COR bylaws that the Legal Committee review
the bill was, however, skipped, and the Legal Committee may
challenge the first reading on that basis.) Abadi noted
statements of concern over the present draft of the bill from
a number of Members. For example, he noted that some Members
objected to sale of land to foreigners, although the bill
permits only 50-year leases. Abadi noted that foreign
investors might be concerned about their inability to own
land but said that, given the nationalist sensitivities in
Iraq in evidence on the CoR floor, 50-year leases should be
seen as providing stability, particularly because a lease
could be sold and could also be renewed. Econ Mincon
emphasized that Iraq was competing for capital with other
countries in the region and beyond. He urged the Members to
ensure that the law provided inducements, not obstacles, to
investors. If the law was seen as being too restrictive,
business would not come to Iraq but go elsewhere. (Comment:
the draft law will allow foreign investors to buy shares in
partnerships in Iraqi companies that own land.)


5. (SBU) Abdai said that he understood and that important
parts of the law were establishment of a Council, led by a
Minister, to provide a one-stop point of approval as well as
inclusion of provisions for prompt Council decision-making.
In addition to providing for prompt approvals (or denials),
Abdi said that this structure was designed to minimize
bureaucrats, (and others) opportunities for corruption.


6. (SBU) Dr. Abadi also noted that the provision calling for
50 percent of the employees to be Iraqis was also criticized
as insufficiently protective of Iraqis. Econ Mincon noted
that firms from the U.S. and other developed countries wanted
to hire locally and to train local personnel from line
workers to managers because of the high costs of expatriates,
who required support for housing, schooling for children,
travel in addition to their salaries. Abadi said that
Members were concerned about workers being brought in from
low labor-cost countries. Econ Deputy suggested that a more
flexible approach might to use immigration and visa law
rather than the Investment Law to deal with the issue.
Mincons noted that a foreign or Iraq firm might have a need
for employees with a particular set of skills not available
in Iraq in order to start up. An arbitrary number in the
Investment Law might discourage such a firm from coming to
Iraq. Immigration law could permit entry of such employees
for a pre-determined period during which the company could

BAGHDAD 00002738 002 OF 002


establish itself while training Iraqis. Dr. Abadi responded
enthusiastically to an offer to provide information about how
U.S. visa law addresses the problem. Abadi noted, however,
concern that corruption would be a problem with any system
that allowed flexibility.

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Secure Investment Zones
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7. (SBU) To enable foreign businesses to enter Iraq in the
face of the threat of ongoing violence, Abadi said he and
others were considering creating secure investment zones.
These areas would be built as protected and guarded enclaves
in which foreign companies' employees could work and live
with their families, and would include, in addition to
factories and offices, houses and schools. An area, not now
developed, near Basra might be the first such zone.

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Fuel Import Liberalization Law
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8. (SBU) Dr. Abadi then discussed the Fuel Import
Liberalization Law, an important part of the GOI,s economic
reform plans. Members questioned whether the private sector
in Iraq was sufficiently open and competitive for liberalized
imports to result in greater availability of product at
prices most Iraqis, particularly poor Iraqis (40 percent of
the population) could afford. Abadi said that at present
Iraqis trusted the GOI more than Iraq,s private business
people because under Saddam anyone doing well in business had
to be in league with Saddam or his cronies. Abadi and other
Members are concerned that the firms that enter the fuel
import business will collude to fix prices. Econ Mincon
argued that foreign major oil firms that come into the market
would be unlikely to engage in such behavior because of their
broader interest in hydrocarbon activities at some later
date. (Note: Dr. Abadi confirmed that the fuel import bill
had been expanded from its original coverage of only
automotive fuels and lubricants to include kerosene,
Liquefied Petroleum Gas (LPG) and asphalt. End note.)


9. (U) Dr. Abadi looked forward to continuing contacts with
post and appreciated the interest in his Committee and the
COR.

SCOBEY