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