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.

ISLAMABAD 00001520 002 OF 002


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.