US embassy cable - 03ABUDHABI4202

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 004202 
 
SIPDIS 
 
 
TREASURY FOR SECRETARY SNOW FROM AMBASSADOR WAHBA 
DEPT FOR NEA, NEA/ARP, EB/IFD/ODF - WIVEL 
TREASURY FOR IMF/WB OFFICE - WILEDON 
DOD FOR COMPTROLLER ZAKHEIM 
 
E.O. 12958: DECL: 09/15/08 
TAGS: AORC, ECIN, EFIN, EINV, OVIP, PREL, PGOV, TC 
SUBJECT: SCENESETTER FOR SECRETARY SNOW AND THE U.S. 
DELEGATION TO THE IMF/WB MEETINGS IN DUBAI 
 
1.  (U) Classified by Ambassador Marcelle M. Wahba for 
reasons 1.5 (b) and (d). 
 
2.  (C) Secretary Snow:  I would like to welcome you to the 
UAE as you prepare for the 2003 annual meetings of the 
International Monetary Fund (IMF) and the World Bank (WB) 
in Dubai.  Dubai's leadership has invested enormous capital 
and labor preparing for the September 20-24 IMF/WB 
meetings, to be held at a brand new convention center 
custom-built for the event.  We expect the local 
hospitality industry will reap huge windfalls following the 
conference, akin to the benefit that accrues to cities that 
host the Olympic Games.  This event is a prime opportunity 
for the UAE -- and Dubai, in particular -- to showcase its 
first-class financial, transportation, and logistics 
industries. 
 
3.  (U) Although oil continues to be the driving force in 
the UAE -- Abu Dhabi possess some 10 percent of the world's 
oil reserves -- the UAE is considered to have a relatively 
diversified economy compared to its Gulf neighbors.  Major 
non-oil industries in 2002 included manufacturing (11 
percent of GDP), wholesale and retail trade (10 percent of 
GDP), government services (9.6 percent of GDP), and 
construction (8 percent of GDP), according to official UAE 
statistics.  In addition, trade with the United States was 
significant in 2002.  U.S. companies exported more than $3 
billion in mostly machinery, manufacturing spare parts, and 
luxury vehicles to the UAE in 2002, and imported about $1 
million in petroleum products. 
 
--------------------- 
Dubai Goes Prime Time 
--------------------- 
 
4.  (U) The scarcity of petroleum deposits in the emirate 
of Dubai has encouraged the leadership there to actively 
promote private sector growth.  Dubai Crown Prince Sheikh 
Mohammed bin Rashid Al-Maktoum has forged ahead with scores 
of burgeoning real estate, infrastructure and construction 
projects.  The list of current construction projects in the 
pipeline is staggering, ranging from major airport and 
seaport expansions to the establishment of yet more free 
zones, to five star hotels and the now legendary Palm 
Islands -- two six kilometer-long artificial luxury 
residential peninsulas in the shape of palm trees extending 
out from the Dubai shoreline. 
 
5.  (U) Dubai also is home to the largest and most 
successful free zone in the world -- the Jebel Ali Free 
Zone (JAFZ).  More than 2,200 companies representing 80 
countries have set up shop in the JAFZ, including numerous 
Fortune 500 firms.  Presently, 13 free trade zones operate 
in the UAE, and more are in the developmental stage. 
Overall, these free zones form a vital component of the 
local economy, and serve as major re-export centers to the 
Gulf region.  Since UAE tariffs are low and not levied 
against many imports, the chief attraction of the free 
zones is the waiver of the requirement for majority local 
ownership.  In the free zones, foreigners may own up to 100 
percent of the equity in an enterprise. 
 
6.  (C) A variety of innovative free zones in Dubai has 
been established since 2000, most notably the TECOM 
(Technology, Electronic Commerce and Media) free zone. 
TECOM houses both Internet City and Media City, two 
subdivisions which cater, respectively, to the IT and media 
sectors.  TECOM offers a high bandwidth, state-of-the-art 
IT infrastructure.  Current tenants of TECOM include 
prominent names such as Oracle, Reuters, CNN, Hewlett 
Packard and Microsoft.  Other Dubai free zones planned 
include Health Care City, specializing in medical products 
and services, and the Mohammed Bin Rashid Technology Park, 
which aims to promote scientific research and development, 
and to transfer technology throughout the region.  Set to 
open shortly (as soon as implementing regulations have been 
formalized) is the Dubai International Financial Center 
(DIFC), a "free zone" for top-tier financial institutions. 
DIFC is designed to create a financial market place between 
the financial centers in London and Hong Kong.  DIFC is 
setting up its own regulations based on international best 
practices; it will, however, be subject to UAE anti-money 
laundering laws. 
 
---------------- 
Bilateral Issues 
---------------- 
 
7.  (C) In addition to the multilateral meetings on Iraq, 
Afghanistan, and financial reform, you may have the 
opportunity to meet with key UAE interlocutors, including 
UAE Defense Minister and Dubai Crown Prince Mohammed bin 
Rashid Al-Maktoum and titular UAE Finance Minister Hamdan 
bin Rashid Al-Maktoum.  I know that a number of meetings 
also have been scheduled on the margins of the IMF/WB 
meetings with de facto Finance Minister Mohammed Khalfan 
bin Khirbash, who manages a vast portfolio including UAE 
aid to Iraq and Afghanistan.  We also understand that 
Chairman Greenspan will meet with UAE Central Bank Governor 
Sultan Nasser Al-Suweidi, who has championed our bilateral 
efforts to combat terrorist financing in the region. 
Undersecretary Larson will meet with de facto Finance 
Minister Khirbash. 
 
8.  (C) There are a number of economic and commercial 
issues that our UAE interlocutors may raise in these 
meetings, the most sensitive of which are ARBIFT, double 
taxation, and OPIC coverage for the UAE. 
 
ARBIFT 
------ 
 
9.  (C) The USG has frozen more than $120 million belonging 
to the Arab Bank for Investment and Foreign Trade (ARBIFT), 
which has been determined by OFAC to be a Specially 
Designated National (SDN) of Libya.  The majority of these 
funds, however belong to Emirati depositors, and the 
continued freezing of these funds has become one of our 
largest bilateral irritants.  In consultation with OFAC, 
the UAE recently revised the management structure of the 
bank to remove Libyans from day-to-day oversight of 
activities and agreed to replace the Libyan Chairman with 
an Emirati this fall.  The UAEG hopes that the change in 
the bank's chairmanship may permit the licensing of some of 
ARBIFT's funds to the UAE, which in turn could be used to 
issue new shares and thereby reduce Libya's equity stake. 
 
Double Taxation 
--------------- 
 
10.  (C) The UAE Ministry of Finance is interested in 
talking to Treasury's Office of International Tax Counsel 
about the modalities of a double taxation agreement. 
Treasury, in the past, has informed Post that a double 
taxation agreement with the UAE is not possible due to the 
vast differences in the two countries' tax systems.  UAE 
officials, however, may ask for further clarification. 
 
OPIC 
---- 
 
11.  (C) The UAE has been suspended from U.S. OPIC 
insurance programs since 1995 because of the UAEG's lack of 
compliance with internationally recognized worker rights 
standards -- particularly rights to association and 
collective bargaining.  The ILO reported in April 2003, 
however, that the UAE had started to address these 
concerns.  This year the UAEG drafted a labor law in 
consultation with the ILO that permits the creation of 
formal labor associations/unions.  We expect OPIC officials 
to travel here for consultations this fall. 
 
-------------------- 
Expression Of Thanks 
-------------------- 
 
12.  (U) More broadly and if given the opportunity, you 
also may want to express your appreciation for the UAEG's 
continued cooperation with us on counter-terrorism, and 
substantial support to Iraq and Afghanistan, detailed in 
paragraphs 13-15. 
 
Counter-terrorism 
----------------- 
 
13.  (U) Combating terrorist financing through its formal 
and informal financial networks has been a major goal of 
the UAEG since 2000, and an area in which the UAEG has made 
tremendous strides.  The UAE was the first Arab country to 
become a member of the elite Egmont Group of Financial 
Intelligence Units.  The UAEG implemented a law to 
criminalize money laundering, to include terrorist money 
laundering, in February 2002.  The UAEG has been 
particularly cooperative with international efforts to 
block terrorist financing, including freezing the assets of 
more than 150 named terrorist entities and, working in 
partnership with the United States, simultaneously freezing 
and seizing significant assets in the UAE belonging to the 
Al-Barakat terrorist financing group.  The UAE continues to 
coordinate and share information on potential terrorist 
financing operations with the United States. 
 
Iraq 
---- 
14.  (C) UAE assistance to Iraq, both pledged and 
delivered, has been significant.  UAE Chief of Staff Shaykh 
Mohammad bin Zayid Al-Nahyan confirmed to the Ambassador in 
July that total UAE assistance to Iraq has exceeded $50 
million, and he expects this figure to rise to USD $80 
million by the end of 2003.  This figure obviously doesn't 
include the considerable private humanitarian donations to 
Iraq provided by senior royal family members.  The UAEG 
also provided specific proposals for participation in 
Iraq's economic recovery.  Most recently, the UAE Central 
Bank Governor met with representatives from Treasury's Iraq 
Task Force in August to firm up UAEG offers of training to 
Iraqi bankers in banking operations, banking supervision 
and examination, and anti-money laundering detection and 
investigation. 
 
Afghanistan 
----------- 
 
15.  (C) The UAE has provided millions of dollars in 
financial aid and assistance-in-kind to the Afghan Interim 
Authority.  UAE humanitarian and military programs in 
Afghanistan are ongoing, and we expect the final price tag 
to far exceed the $150 million already spent.  The UAEG 
pledged $30 million in economic assistance to Afghanistan 
and a further $6 million in humanitarian aid -- over and 
above the millions of dollars in humanitarian assistance 
previously delivered -- at the January 2002 Tokyo 
conference.  The UAE also has provided an assistance-in- 
kind package to the Afghan National Army totaling $50 
million.  The UAEG continues to provide substantial 
personal financial support to Karzai, who is rumored to 
have received several million dollars during his visits to 
Abu Dhabi in 2002. 
 
16.  (U) CPA minimize considered.  This cable was 
coordinated with Congen Dubai. 
 
Wahba