THE GERMAN-IRAQI INVESTMENT PROMOTION AGREEMENT

UNCLAS SECTION 01 OF 02 BAGHDAD 002501 SENSITIVE SIPDIS C O R R E C T E D C O P Y (ADDED CAPTION) E.O. 12958: N/A TAGS: EINV ECON ETRD IZ GM SUBJECT: THE GERMAN-IRAQI INVESTMENT PROMOTION AGREEMENT AND THE JOINT ECONOMIC COMMISSION REF: A. BAGHDAD 2440 ¶B. BERLIN 1044 ¶C. BERLIN 786 BAGHDAD 00002501 001.2 OF 002 ¶1. (SBU) SUMMARY: According to the departing German Ambassador to Iraq, the recently initialed German-Iraq Investment Promotion Agreement (IPA) would be better described as an "Investors' Protection" Agreement. Routine to nearly all German bilateral commercial relationships, similar documents are in force with 126 countries worldwide. As important is the IPA is to establishing legal dispute resolution mechanisms and to bolstering German investors' confidence, the Ambassador also hailed the re-establishment of the German-Iraq Joint Economic Commission (JEC). There are still serious obstacles to a major return of German investment to Iraq, but investors' interest is very high, and the IPA and JEC are welcome steps toward re-establishing what was once a very robust commercial relationship. End Summary. ¶2. (SBU) EconCouns and Econoff met with German Ambassador to Iraq Hanns Schumacher and incoming Ambassador Christof Weil at the German residence August 9 to learn more about the recently initialed German-Iraq IPA (Reftel B). The IPA is not really an investment agreement, Schumacher clarified, but more of an "Investors' Protection" Agreement. (The FRG even proposed to call the IPA a Protection Agreement, but GOI officials expressed discomfort at the use of the term "protection." Once the word "promotion" replaced "protection," the Iraqis agreed to the text with no substantive changes, Schumacher reported.) An IPA is "routine" in all of Germany's significant commercial relationships, and FRG currently has 126 such agreements in place worldwide. IPAs have treaty status, and while the German-Iraq IPA has only been initialed, Schumacher did not foresee any political difficulties on the German side in securing ratification. The agreement protects investors specifically against government interference in their operations and confiscation, and includes an arbitration clause that refers unresolved disputes to the International Centre for the Settlement of Investment Disputes (ICSID) in The Hague. (We have been promised a copy of the document, which will be signed once the German, English and Arabic texts have been reconciled.) ¶3. (SBU) As important as the IPA will be to the eventual return of German investment to Iraq, Schumacher was equally enthusiastic about the revival of the German-Iraq Joint Economic Commission (JEC),which held its first meeting in 20 years during PM al-Maliki's trip to Germany (Reftels). The JEC is actually a GOI-FRG body, which the Iraqis, in particular, feel is necessary to the bilateral commercial relationship given the "mixed" economy that is emerging in post-Saddam Iraq. The JEC will "break the ice" for high-level government-to-government contact which, in post-Socialist Iraq, the GOI still feels is necessary to accommodate and facilitate business, Schumacher said. ¶4. (SBU) In more general terms, Schumacher underscored that both large German corporations and SMEs have shown a surprising amount of enthusiasm for returning or coming to Iraq. Economic Minister Glos and other senior officials were concerned that turnout among German business leaders might be low for al-Maliki's visit, but in fact it was very encouraging. Unlike most US businesses, German companies have a long history of working in Iraq (Germany was Iraq's leading trading partner for much of the 1970s and 80s, Schumacher claimed) and understand the opportunities that are emerging. ¶5. (SBU) EconCouns also raised the International Compact with Iraq (ICI),asking if there were any provisions within it for FRG- or private sector-led capacity building programs for Iraqis. Schumacher noted that while German bilateral technical assistance in security and education were ongoing, there were no business-related programs in place. He suggested that some business umbrella organizations were considering the possibility of sponsoring 6-12 month internships for Iraqis at German companies, but that this was still only in the discussion stage. Schumacher proposed that an effective means to address capacity-building and to promote investment might be a major business seminar in Berlin, to be hosted by the Iraqi Embassy and some of the German-Arab business associations, with support from the FRG and perhaps the US Embassy. EconCouns agreed that this was an idea worth exploring, and might particularly bear fruit in the housing and construction sectors, where foreign investment partnerships could be crucial to mitigating the dire housing shortages in Iraq. ¶6. (SBU) COMMENT: German enthusiasm for investing in Iraq is tempered in the near-term by real obstacles, not the least of BAGHDAD 00002501 002.2 OF 002 which remains security. However, as the security environment continues to improve, the IPA and the re-establishment of the JEC lay the groundwork for revitalizing what was once a very robust German-Iraqi commercial relationship. ¶7. (SBU) COMMENT CONTINUED: The German presence in Baghdad remains small, and teh FRG embassy here would be hard-pressed to support a business conference such as that proposed in para 5. Likewise, the Iraqi Embassy in Berlin may face similar problems. A trilateral Iraqi-German-US sponsored event might prove a more realistic scenario. If German and European politicians see their companies straining at the bit to expand their involvement in a cash-rich Iraq, they might become more interested in expanding their political involvement as well. We would welcome Embassy Berlin's thoughts on this concept. End comment. CROCKER