CETI: MOT AL-SUDANI DISCUSSES TARIFFS, WTO

C O N F I D E N T I A L BAGHDAD 002898 SIPDIS E.O. 12958: DECL: 09/07/2018 TAGS: ETRD EINV EAGR ECON IZ SUBJECT: CETI: MOT AL-SUDANI DISCUSSES TARIFFS, WTO ACCESSION AND PDS REFORM REF: A. BAGHDAD 2830 ¶B. BAGHDAD 2811 ¶C. BAGHDAD 2014 ¶D. BAGHDAD 2689 Classified By: Economic Counselor Michael Dodman, reasons 1.4 (b,d). ¶1. (C) SUMMARY: Iraqi Trade Minister Al-Sudani told EMIN that the GOI remains fully committed to WTO accession, even though some in government "who still cling to a regime mentality" continue be skeptical about the process. He confirmed once again that reform of the Public Distribution System would be delayed. He also warned us not to expect rapid passage of hydrocarbons or customs/tariff legislation, saying these bills have become "political, not economic." END SUMMARY. ¶2. (U) EMIN, accompanied by FCS Counselor and Econoffs, made his initial call on Minister of Trade Abd Al-Falah Al-Sudani at his residence September 4. WTO: Filling the Vacuum -------------- ¶3. (SBU) Al-Sudani reaffirmed the GOI's commitment to eventual WTO membership, noting that after years of war and bad governance Iraq's future depended on "filling the vacuum with economic activity." Once Iraq changes the legal environment and establishes a modern investment regime, he predicted, "investors will come to Iraq." He did acknowledge that the WTO process has not proceeded as quickly as the GOI and the USG might wish, and that "we have a lot to do" in terms of establishing a modern legislative framework that will encourage investment. In response to EMIN's question about when implementing regulations to support the 2006 National Investment Law (many of which were drafted and submitted to Cabinet more than four months ago) might be promulgated, Al-Sudani urged patience. He admitted that there is little sense of urgency within the Council of Ministers (COM) to move them forward. The Investment law is vital, but there are those in Iraq who do not understand free trade and liken WTO membership to "allowing foreign companies to occupy our country. They even call us imperialists," Al-Sudani said ruefully. Until these types of mentalities change -- which they will -- the GOI must proceed with caution. Stalled Legislation Becoming "Political, Not Economic" -------------- -------------- ¶4. (C) Al-Sudani likewise urged patience regarding the hydrocarbons law and the draft custom/tariff bill. The former remains stalled in the Council of Representatives (COR),and the latter has recently emerged as the subject of controversy within the Cabinet. The MOT, for its part, remains convinced that Iraq's tariff structure must be as low and flat as possible (Refs A, C). However, "I must emphasize that this is not easy," Al-Sudani cautioned; some in the Cabinet still cling to a "regime mentality" and do not yet understand that low tariffs will actually increase trade, investment and development. Because passing these bills is part of the process of changing that mentality, there will be delays. The COM could move the customs bill to Parliament "in the next month or two," Al-Sudani said, but COR approval will not come before the end of the year, at the earliest. As for hydrocarbons, he suggested late 2009 or even 2010, noting that "these laws are political, not economic." PDS Reform Delayed -------------- ¶5. (SBU) Finally, Al-Sudani described the need for PDS reform, but again warned that the process is sensitive and will take time. The Minister had signaled to us in August that reforms scheduled to start in January 2009 would likely be pushed back a few months (Ref D). Now, he told EMIN that while the information gathering and means testing process is still likely to begin in November as planned, there will be no cuts in rations for at least a year. Then, beginning in January 2010, the GOI will start phasing out commodity benefits to the richest 25% of Iraqis. Al-Sudani remains personally committed to reforming what has become a corrupt and tremendously costly program, but he noted that the issue is politically treacherous for him and his Ministry. "The system is not good, but believe me I don't like to say that" publicly. CROCKER