COMMERCE AND INVESTMENT MINISTRIES REQUEST UNDERSTANDING AND ACCESS TO U.S. MARKETS

UNCLAS SECTION 01 OF 02 ISLAMABAD 001520



SENSITIVE

SIPDIS



E.O. 12958: N/A

TAGS: ECON, EINV, ETRD, PREL, PK

SUBJ: COMMERCE AND INVESTMENT MINISTRIES REQUEST UNDERSTANDING AND

ACCESS TO U.S. MARKETS



1. (SBU) Summary: In separate meetings June 29 and 30 with NSC

Senior Director for International Economic Affairs David Lipton,

Treasury Deputy Assistant Secretary Robert Dohner, and SRAP Senior

Economic Advisor Mary Beth Goodman, GOP Secretary Commerce Suleiman

Ghani and Secretary Investment Tariq Puri pushed for increased

market access to U.S. and EU markets in order to offset

disadvantages imposed by the threat of terrorism in Pakistan. Puri

said the GOP would prepare a letter outlining Pakistan's desire to

re-start discussions of a bilateral investment treaty (BIT) soon,

while Ghani suggested discussing Pakistan's wish to be re-classified

as a less-developed country (LDC) at the Joint Study Group proposed

at the Trade and Investment Framework Agreement talks (TIFA) in May.

Ghani also committed to speedy GOP review of an Afghan request to

expedite the transit of Afghan fruit. End Summary.



2. (SBU) Secretary Commerce Suleiman Ghani told NSC Senior Director

for International Economic Affairs David Lipton, Treasury Deputy

Assistant Secretary Robert Dohner, and SRAP Senior Economic Advisor

Mary Beth Goodman, that Pakistan needed not only to diversify its

trade - which focuses largely on low- to-middle end markets - but

must also recalibrate its direction: only 5-6 percent of Pakistan's

trade is within the region (including China); the remainder is

destined for the U.S. and European markets. The three-year trade

policy currently under preparation will focus on increasing regional

trade and making industry more competitive, in particular focusing

on more value-added exports. The GOP will focus on technology

upgrades rather than cash incentives for business. Rationalizing

Pakistan's protectionist tariff regimes and emphasizing

institutional capacity building are also priorities.



3. (SBU) Ghani lamented the fact that Pakistan was the only country

in the region not currently benefiting from either less developed

country (LDC) preferences or a free trade agreement (FTA) with the

U.S. He suggested the U.S. and Europe should help Pakistan "level

the playing field" in trade to offset the disadvantage terrorism

imposed on Pakistan's economy. Ghani said that the Joint Study

Group Pakistan agreed to establish at the Trade and Investment

Framework Agreement (TIFA) talks in May might be a venue to discuss

re-categorizing Pakistan as a less developed country (LDC) as a

first step.



4. (SBU) Secretary Investment Tariq Puri on June 30 called energy

and security the two biggest challenges facing foreign and domestic

investors alike. Echoing Ghani's earlier comments, Puri said

Pakistan needs help - in particular increased market access - from

its main trade partners, the U.S. and the EU. A change in EU access

regulations in 2005 made Pakistan the only country in the region

without preferential access to EU markets. Puri said that

assistance money is necessary in the short term, but increased trade

will spur production and increase employment - and more jobs means

less militancy. Puri also lamented the current war in the NWFP is

deterring investment, particularly in the textile sector.



5. (SBU) Lipton responded that market access in and of itself is not

the answer: Pakistan also has an obligation to undertake necessary

reforms that would encourage investment and development at home.

While he agreed that energy is a particularly acute challenge,

Lipton said the GOP could not realistically get more power out of

the system without raising tariffs.



6. (SBU) Puri said that the GOP is ready to discuss a bilateral

investment treaty (BIT) "at any time." He promised to send a

letter, coordinated across the GOP, expressing Pakistan's

willingness to resume discussions and indicated the GOP is looking

at ways to address arbitration even outside of a BIT framework.

Legislation to establish special economic zones (SEZ) is also being

prepared with the goal of providing a one-window operation for

foreign investors and connecting them as required to necessary

infrastructure and utilities.



7. (SBU) Comment: Ghani seems inclined to nudge the GOP into

complying with the Afghan request to expedite transshipment of

Afghan fruit in a timely manner; whether he can get the sluggish

bureaucracy in train in time is another matter, but Post is

following up with the GOP to maintain the pressure. GOP "interest"

in re-starting talks on a BIT is not new, and the truth of the

Ministry's intentions will be in whether Puri can produce the

coordinated GOP position necessary to get any talks back on track.



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The joint USAID-GOP Competiveness Support Fund (CSF) is working

closely with the Investment Ministry in developing both the

arbitration and SEZ legislation, which we hope will bear fruit in

coming months. End Comment.