TWO STEPS BACKWARD? GOL ENFORCES 2004 LAW ON FOREIGN DISTRIBUTORS

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C O N F I D E N T I A L SECTION 01 OF 02 TRIPOLI 000620

SIPDIS

STATE FOR NEA/MAG; STATE PLEASE PASS USTR PAUL BURKHEAD; COMMERCE FOR ITA NATE

MASON; COMMERCE FOR THE ADVOCACY CENTER; ENERGY F

E.O. 12958: DECL: 8/3/2019

TAGS: ECON, EAGR, EPET, EFIN, PGOV, ETRD, LY

SUBJECT: TWO STEPS BACKWARD? GOL ENFORCES 2004 LAW ON FOREIGN

DISTRIBUTORS

REF: TRIPOLI 619

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CLASSIFIED BY: Gene Cretz, Ambassador, U.S. Embassy Tripoli,

Department of State.

REASON: 1.4 (b),(d)

1. (C) Summary. Pol/Econ Chief and FCS were summoned, along

with a handful of other foreign diplomats, to the Prime

Minister-equivalent's office August 2 for a meeting with his

director for cooperation and Ministry-equivalent of Economy

officials to discuss the latter ministry's implementation of a

law dating back to 2004, which stipulates that all foreign

distributors must work through 100-percent Libyan-owned and

operated trade agents in order to operate in Libya. The

officials emphasized that the law had not yet been implemented

in order to give companies an "opportunity to adjust their

practices" independently. According to the law, all foreign

distributors must work with Libyan agents only - no third

country nationals - and must develop plans for expansion from

Tripoli to the cities of Benghazi, Sebha, and Sirte. The law is

likely to create conditions that prohibit small and medium sized

distributors from investing in Libya and may cause some foreign

companies to withdraw from the market. This and other efforts

to impose old and new regulations may reflect a stepped-up

effort by the GOL to gain some control over its helter skelter

approach to development which enabled a rush of foreign

companies to enter the country. End Summary.

2. (C) The Prime Minister-equivalent's (PM) office summoned

Economic/Commercial Counselors from the Italian, German, French,

Chinese, South Korean, and Japanese embassies, in addition to

Pol/Econ Chief and FCS, August 2 for an unplanned meeting to

discuss "trade-related issues." [Note: The PM's office first

summoned the ambassadors of the above listed countries, later

downgrading attendance after it was clear that the PM would not

be able to attend the meeting. End Note.] Chaired by the PM's

director for cooperation, Issam Zawia, and Dia Hammouda, the

r />director of the same office at the Ministry-equivalent of

Economy (MOE),the purpose of the meeting was to clarify the

meaning and intent of Law Number Six of 2004, which governs

transactions between foreign distributors and local trade agents

in Libya. The law stipulates that each foreign distributor

seeking to introduce its product in Libya must deal with a

100-percent locally owned and operated trade agent.

Specifically, Hammouda wanted to ensure that the embassies

representing the "industrialized nations" in Libya were aware

that the Ministry was in the process of executing the law and

would be preparing enforcement mechanisms to ensure compliance.

The purpose of the late imposition of the law, according to

Hammouda, was to allow foreign companies the time necessary to

adjust their operating practices independently. As few

companies had done so, the Ministry decided that it was time to

enforce the law. Hammouda outlined his Ministry's interest in

both creating a regulated, favorable, and transparent operating

environment for foreign investors, as well as fighting

corruption. He said that he would convene other meetings with

the directors of foreign distributorships currently operating in

Libya, as well as with local agents, in the near future. In

response to an inquiry from one of the diplomats in attendance,

Hammouda set a nominal deadline of the end of the year for

compliance with the law but later backed away from that date.

3. (C) In addition to the first point of law that Hammouda

highlighted, he noted that Law Number Six required each foreign

distributor to develop plans to establish distribution

facilities in four areas: Tripoli, Benghazi, Sebha, and Sirte.

Moreover, each distributor must deal with a distinct trade agent

in each city, for the purpose of expanding investment across the

country. When several diplomats protested the difficulties that

companies would face in trying to establish multiple operation

sites with unrelated agents, Hammouda clarified that companies

must merely have plans for expansion and that the government did

not expect foreign distributors to open four sites at once. He

stated that distributors would have time to settle into the

local market before expanding and that expansion could be down

slowly, in consultation with the MOE.

4. (C) Several diplomats debated the logic of the law with

Hammouda for the greater part of two hours, particularly

regarding the expansion requirement in four different areas with

four different agents. The South Korean diplomat also noted the

difficulties that companies might face if forced to break

long-term contracts with local agents. The German diplomat

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noted that many countries around the world allow foreign

distributors to write exclusive contracts with a single local

agent in order to better organize their business plans, to which

Hammouda responded "Libya is not like other countries" and must

develop its own laws to fit its environment.

5. (C) Comment: Hammouda seemed intent on Libya's enforcing

the 2004 law, though his backtracking on a deadline and lack of

a clear enforcement strategy reflected some confusion regarding

whether the law could actually be implemented. It was also

clear that the MOE lacks a strategy for confronting the problems

that will arise when the law is implemented. The most immediate

effects of the law for U.S. trade will be seen in the

Caterpillar negotiations (reftel),in terms of whether the MOE

will force the company to abide by the expansion requirement.

The positive news, if any, is that the law will be applied

across the board among the major investors in Libya (though the

lack of UK participation in the meeting was notable). A

well-connected contact in the business and government world here

believes this is yet another in a series of GOL attempts

(haphazard as they are) to gain control over the helter-skelter

approach it has taken to developing its infrastructure through

its heretofore open welcome-mat for foreign companies. End

Comment.

CRETZ

TWO STEPS BACKWARD? GOL ENFORCES 2004 LAW ON FOREIGN DISTRIBUTORS

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