SENATOR BAUCUS'S VISIT TO THE UAE

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 001430

SIPDIS

E.O. 12958: DECL: 12/20/2018
TAGS: EFIN ECON PGOV ETRD ENRG OREP PREL SENV PARM KNNP AE
SUBJECT: SENATOR BAUCUS'S VISIT TO THE UAE

Classified by Ambassador Richard Olson, reasons 1.4 (b) and (d).


1. (U) This is a joint Embassy Abu Dhabi - Consulate General Dubai
cable.

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


2. (C) During his December 13-15 visit to the United Arab Emirates,
Senator Max Baucus (D-MT) and accompanying delegation from the Senate
Finance Committee staff met with senior government and financial
leaders to discuss bilateral political and economic relations, the
impact of the global financial crisis, and the UAE's development
goals. UAE officials said they are working to improve relations with
Congress and hope the 123 agreement will be approved "soon." Baucus
asked his interlocutors for their advice to the new U.S. President
and Congress; many expressed their hope that the Arab-Israeli issue
could be solved. End Summary.


3. (SBU) In Abu Dhabi, Senator Baucus, joined by the Ambassador, met
with Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed Al Nahyan
(reported septel),Minister of Foreign Trade Sheikha Lubna Al Qasimi,
Minister of State for Foreign Affairs Dr. Anwar Gargash, Abu Dhabi
Investment Authority Chief Investment Officer Jean-Paul Villain,
Masdar Future Energy Company CEO Dr. Sultan Al Jaber, and Mubadala
CEO Khaldoon Al Mubarak. In Dubai, the Senator met with UAE Vice
President, Prime minister and Dubai Ruler Sheikh Mohammed bin Rashid
al Maktoum (MbR),had an extensive discussion with members of the
American business community and addressed students at Zayed
University.

U.S. PERCEPTION OF THE UAE
--------------


4. (C) Baucus told his interlocutors that many in the United States,
particularly in Congress, are not aware of the depth of US-UAE
cooperation. Baucus urged the UAE to do more to educate Americans
about the country. Sheikha Lubna agreed that general perceptions
about the Middle East influence opinions and that the UAE was at
fault for not visiting more of the United States, particularly those
states in which the UAE had made investments. Mubadala CEO Khaldoon
al Mubarak praised US-UAE government, private sector and security
cooperation, but said unfortunately the warmth of this relationship
has not always extended to Congress.

123 AGREEMENT
--------------


5. (C) Sheikha Lubna noted recent press articles about US-UAE efforts
to conclude a 123 Agreement for nuclear cooperation. She argued the
UAE had cooperated on many sensitive export control and
nonproliferation issues and asked that the Administration convey this
to Congress. Failure to conclude the agreement would only ensure
that the UAE turns to the UK or France for technology cooperation.
Al Mubarak said the UAE is actively working on its Congressional
engagement. Officials will continue to explain future nuclear energy
needs (20-25 percent of total electricity generation),with the hope
of finalizing the 123 agreement "very soon." Al Mubarak said there
is U.S.-UAE cooperation on many technologies (e.g., energy,
aerospace, health) and stressed the long-term opportunities for
nuclear cooperation.

ABU DHABI AND DUBAI FINANCIAL ISSUES
--------------


6. (C) ADIA officials told Baucus that ADIA had done better than many
US pension funds because the sovereign wealth fund (SWF) had "totally
avoided" exposure to sub-prime investments and had not invested in
corporate credit. Chief Investment Officer Jean-Paul Villain said
ADIA returns are generally similar to those of Yale's endowment.
(Note: Yale reported on December 16 that it had lost 13.4 percent
between July and October. End Note.) Although ADIA (like other SWFs)
was not historically leveraged, Villain said today it is very
efficient to be leveraged.


7. (C) ADIA officials opined that Dubai has a debt problem,
particularly in the real estate sector. Villain told Baucus there
was too much investment in luxury properties, despite high demand for
small apartments. He predicted that the northern emirates would
suffer more than Dubai from declines in the real estate market, as
commuter residents would move into Dubai as prices fell. Villain
criticized some large Dubai infrastructure projects (e.g. airport,
metro) that were financed with cheaper short term capital although
they will have long term returns. While Abu Dhabi can help its
brother emirate, ADIA officials said there will be conditions on any
assistance.

GLOBAL FINANCIAL CRISIS
--------------


8. (C) Global stimulus plans, though some were initially unclear,
have allowed the world economy to return to "normal" and purchasing
power is on the rise. ADIA officials said those firms that do

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survive the downturn will exit the crisis much stronger. Villain
noted that greater pricing transparency in the credit default swap
market would attract more investment. Several officials told Baucus
that they thought the proposed bailout for the U.S. auto industry is
a "must," due to unemployment concerns, but said the industry is
obviously not competitive. Mubadala COO Waleed Al Mokarrab told
Baucus that, given global economic ties, the United States must "come
roaring back," with a transparent regulatory framework. He and Al
Mubarak praised the recent CFIUS revisions, noting that fair, static
and transparent regulations encourage greater foreign direct
investment. Mubadala will be looking at opportunities across asset
classes, but everyone has been affected by the downturn.

ADVICE FOR THE NEW PRESIDENT AND CONGRESS
--------------


9. (C) Iran: MinState for Foreign Affairs Gargash complimented
Secretary Rice's efforts to keep Gulf countries informed about U.S.
policy on Iran, noting that partners need -- and deserve -- such
explanations. GCC foreign ministers remain concerned about the next
round of incentives for Iran, particularly European intentions. He
warned that Iran is very aggressive diplomatically and uses the media
to advance these efforts.


10. (C) Peace Process: Dubai Ruler Sheikh Mohammed bin Rashid
expressed optimism over the Peace Process, but advocated for greater
engagement with the Palestinians. He reminded Senator Baucus of the
UAE's commitment to supporting Abu Mazen, but encouraged us not to
shut out Hamas. MinState Gargash said the United States must engage
robustly and early on the Peace Process, so that we build on existing
progress. The Arab Peace Initiative is still on the table, and
Sheikha Lubna noted that the Middle East represented a great market
for Israel.


11. (C) U.S.-UAE Free Trade Agreement/Labor Issues: Sheikha Lubna
expressed an interest in the status of trade promotion authority in

2009. Baucus said he would support it, but cautioned that the UAE
cannot expect a "carve-out" for oil and gas and must be prepared to
address labor concerns. Sheikha Lubna said the UAE is working to
address some labor issues, but unionization is "hard for us."
Gargash told Baucus that the UAE is striving to improve living
conditions for expatriate workers, and will work to meeting all UN
Labor standards except those relating to labor unions and the right
of collective bargaining (on the ground that unions and collective
bargaining would constitute a national security threat in a country
where the vast majority of workers are not citizens). Sheikha Lubna
added that the UAE is a great gateway for US products to the region
and noted that the UAE is primarily a capital exporter to the United
States. Liberalization -- in the form of reduced trade barriers,
documentation and visa difficulties -- is good for business.


12. (C) Renewable Energy: Masdar CEO Al Jaber said the United States
should be a model for alternative energy, given its demonstrated
competitive advantage in education and research and development.
Despite failing oil prices, the UAE will continue its efforts to
develop a knowledge-based economy, including its focus on alternative
energy. Al Jaber suggested the USG develop a model for public private
partnerships that rewards innovation based on actual power
generation. Masdar continues to seek investment opportunities in the
United States.


13. (C) US Business Interests: During a breakfast hosted by the
American Business Council in Dubai, the Senator also discussed
objectives for a new Administration and Congress. He heard strong
views on how the US tax code creates disincentives for US firms to
hire Americans abroad, and the importance of the Congress not to
respond to the current economic crisis by turning to anti-trade and
other protectionist approaches.

UAE AS A MODEL
--------------


14. (C) Echoing what Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed
told Baucus (septel),Gargash said the UAE is a modern successful
Islamic country breaking stereotypes. Al Mubarak said Abu Dhabi has
taken steps to upgrade its health infrastructure, including universal
health insurance, and invested in education. Abu Dhabi aims to break
the ranks of the top five governments "in every category," by
measuring its restructuring, privatization and service performance
efforts against international metrics. Because human resources
remain a challenge, al Mubarak said Abu Dhabi is also investing
heavily in education. These reform efforts have been so successful
that it is not uncommon to find Abu Dhabi policies and regulations
being modeled -- if not copied -- in other parts of the Arab world.


15. (U) Senator Baucus was accompanied by:
-- William Dauster, Senate Finance Committee (SFC),Professional
Staff Member (PSM)
-- Demetrios Marantis, SFC PSM
-- Carol Guthrie, SFC PSM
-- Melodee Hanes, SFC PSM
-- Janis Lazda, SFC PSM
-- Jonathan Selib, SFC PSM

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-- Chelsea Thomas, SFC PSM
OLSON