NINEWA'S NOT-SO-FREE TRADE ZONE

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003673

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/04/2017
TAGS: ECON EINV PREL PINR IZ
SUBJECT: NINEWA'S NOT-SO-FREE TRADE ZONE

Classified By: Ninewa PRT Team Leader Jason Hyland: for reasons 1.4 (B)
and (D)


1. This is a Ninewa Provincial Reconstruction Team (PRT)
message.

Summary
--------------


2. (C) The Ninewa Free Trade Zone (FTZ) is anything but a
free market. Originally conceived under the Saddam regime as
a truck park to exchange imported food for exported fuel,
encourage a market for high-value imported goods, and create
a protected environment for factories, the decrepit FTZ,
located north of Mosul in this northern province, now houses
only three operating factories and two car dealerships.
Total commercial activity - measured in sales as well as
on-site factory production - was down 66 percent from a 2003
peak of USD 95 million to just USD 32 million in 2006, and
FTZ Manager Saeed Sharif said it had only seen USD 21 million
in activity this year.

The Zone is Still Active -- If Only a Little
--------------


3. (C) Sharif said no trucks have used the FTZ to exchange
fuel, food or any other item since 2003. Meanwhile, he said
only three factories are functional: a plastic chair factory
operated by Syrian national Nazar Qadh, an alcohol factory
operated by Tel Kaif native Amran LNU, and a building
materials factory operated by a Mosul-based relative of
Provincial Governor Duraid Kashmoula. Two FTZ car
dealerships sell 2007 models of imported small passenger cars
and mini-trucks, the only goods that make enough profit to
overcome the hassle of using the zone. The zone also has an
on-site generator, customs office, police station and branch
of the Al Rafidein bank, which handles staff salaries and
cell phone-based money transfers for customers.

Security, Fees and Bureaucracy Limit Zone's Activity
-------------- --------------


4. (C) Sharif blamed three factors for the FTZ slowdown:

- Security: Beyond the general security issues that restrict
business activity and commercial movement in Ninewa, Sharif
said the destruction by terrorists of the Badoush dam bridge
over the Tigris this spring cut off the direct route between
the FTZ and the Rabiyah Port of Entry on the Iraq-Syria
border. Without a direct route to the FTZ, traders have
calculated that the risk from transiting Mosul outweighs the
benefit of bringing their goods to the zone, Sharif said.
Nonetheless, he argued that the site of the zone itself is
safe since it is co-located with a Kurdish checkpoint on the
road to Dohuk.

- Lack of Authority: Sharif said he is unable to perform the
normal functions expected of a free trade zone manager, such
as conclusion of rental agreements with traders, invitations
to local businesses and arbitration of internal disputes. He
said each of these decisions is referred to a director
general at the Ministry of Finance in Baghdad.

- High Fees: Importers receive no financial benefit from
transacting their business through the FTZ, Sharif said.
They could either pay a five percent customs Iraqi
reconstruction levy at the Syrian border or pay the five
percent reconstruction levy plus one percent for FTZ usage if
they use the zone, he explained. He added that importers
using a Kurdish port of entry have less incentive to use the
zone, as they pay five percent to the Kurdish Regional
Government (KRG) at the Iraqi border with Turkey plus the
five percent Iraqi reconstruction duty and one percent FTZ
usage fee.


5. (C) Sharif made several suggestions to improve the zone's
operation:

- Greater delegation of authority to the FTZ manager to allow
for local decisions on new businesses and factories.

- Lowering the Iraqi reconstruction fee from five to three
percent to make the zone more attractive to traders.

- Facilitating capital movements through the zone, which
lacks electronic bank transfers.

- A guarantee against nationalization of assets and
businesses operating in the zone.

BAGHDAD 00003673 002 OF 002



Bio Notes
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6. (C) Saeed Sharif, who refers to himself as Dr. Saeed, is a
native of the Nabi Younis neighborhood in Mosul's old city.
His grandfather was the mufti of the Nabi Younis mosque. He
worked in the Ministry of Trade, Ministry of Finance and
Iraqi diplomatic service, where he served as commercial
attache in Paris and Belgium. He speaks native Arabic, basic
English and basic French. He has been director of the Free
Trade Zone since 1999.

Comment
--------------


7. (C) Ninewa needs a commercial zone that offers a
supportive business environment, including security, a
minimum of bureaucratic delays and access to both buyers and
sellers. The current Ninewa FTZ on the outskirts of Mosul in
an area shut off by security concerns from the Syrian border
and by high KRG customs duties from the Turkish border does
not seem to be the answer. The center's current business
model also seems to lack any grounding in what the true
function of a free trade zone should be. Nonetheless, the
zone's fortuitous co-location with a police station on the
margins of the relatively prosperous KRG and the traditional
commercial center of Mosul offers the possibility that the
FTZ could serve as a future point of exchange that fulfills
the zone's original conception as a goods exchange point.
Other locations closer to Mosul, however, offer possibly
better connections to transportation, financing and utilities
for a true free trade zone.
CROCKER