US embassy cable - 04ABUDHABI3079

UNCLAS SECTION 01 OF 02 ABU DHABI 003079 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/ARP, NEA/RA, EB/OMA 
STATE PASS USTR FOR AMB ZOELLICK 
STATE PASS FEDERAL RESERVE 
TREASURY FOR MILLS AND NUGENT 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EFIN, TC 
SUBJECT:  THE UAE:  A GOOD PARTNER LOOKING FOR AN FTA 
 
 
1. (SBU) Summary:  Over the last few years, relations 
between the UAE and the U.S. have deepened and expanded in 
the military, counter-terror, and nonproliferation arenas. 
Senior UAEG officials want our economic links to become as 
close as our other ties and argue that a Free Trade 
Agreement would be the best way to cement this 
relationship.  The UAE has also taken significant steps in 
the Trade and Investment Framework Agreement (TIFA) council 
to demonstrate its worth as a future FTA partner and is 
looking for some positive response from the USG to keep the 
momentum moving.  We do have concerns that will need to be 
addressed, such as labor laws, laws requiring majority 
local ownership of companies established in the UAE, and 
the Arab League boycott.  The UAEG is aware of these 
concerns and has either begun to resolve them or recognized 
that they would need to be resolved in the context of a FTA 
negotiation.  End Summary. 
 
2. (SBU) There are a number of compelling arguments 
supporting an FTA with the UAE.  It would improve our 
access to the third-largest economy in the Arab world and 
expand opportunities for U.S. businesses, workers, and 
farmers.  The UAE is a major trade hub and a major regional 
financial center, which has pursued largely pro-free market 
and free-trade policies.  Last year the U.S. exported $3.5 
billion in goods to the UAE and there are approximately 500 
American companies physically present in the country.  They 
could potentially all benefit from changes in UAE laws that 
would accompany an FTA. 
 
Economy 
------- 
 
3. (SBU) The UAE is both a rich and rapidly developing 
country.  With a per-capita GDP of nearly $20,000 and an 
estimated real economic growth rate this year of 5.5% to 
6%, it can be a growth market for U.S. exports in goods and 
services.  Some of the key sectors for U.S. exports include 
construction/engineering, information technology, and the 
oil services sector.  The UAE is also a potentially huge 
market for financial services, especially now that it is 
benefiting from high oil prices and the inflows of capital 
from the region. 
 
4. (SBU) UAE Economic growth is benefiting both from high 
oil prices and solid non-oil growth.  Last year, exports of 
crude oil earned the UAE about $22 billion.  This radically 
slashed the consolidated budget deficit and facilitated the 
funding of investment projects here and abroad.  Based on 
current trends, the UAE is likely to top last year's oil 
earnings.  The UAE has also benefited from being a haven of 
stability in a turbulent region, attracting both foreign 
investment and local investment to fund development 
projects and the stock market.  A western banker recently 
told EconChief that the UAE had about $40 billion worth of 
projects in the pipeline at the planning and discussion 
stage. 
 
TIFA Council Success 
-------------------- 
 
5. (SBU) On April 26, The U.S. and the UAE had a very 
successful TIFA Council meeting in Washington.  Since that 
time, the UAE has moved aggressively to address issues that 
the U.S. raised during the meeting, most impressively in 
the IPR arena.  After we raised concerns about IPR 
enforcement problems at the TIFA council meeting, the 
Embassy successfully worked with U.S. Pharmaceutical rights 
holders to have the UAEG block the sales of drugs that 
infringe Pfizer's patent on Viagra.  In addition, the 
Business Software Alliance has ranked the UAE as the 
country with the lowest software piracy rate in the Middle 
East and 15th in the world with a software piracy rate of 
34 percent (as opposed to the U.S. at 22 percent). 
 
6. (SBU) The UAE has also applied to join the Information 
Technology Agreement (ITA) at the WTO and has informally 
requested U.S. support for its accession.  It has formally 
notified the U.S. that it has no intention of implementing 
the GCC's International Conformity Certification program, 
which the USG viewed as a barrier to trade, and it has 
provided a great deal of information about its commercial 
legal environment to help guide U.S. officials.  Although 
the labor law is still a concern, the UAE cabinet has 
instructed the Ministry of Labor to draft a new law that 
would permit the establishment of labor unions. 
 
Problems and Issues 
------------------- 
 
7. (SBU) Although the UAE has a generally open economy with 
strong opportunities for U.S. businesses, we still have 
several concerns that need to be addressed.  These include 
the Arab League boycott, the UAE labor law, and UAE laws 
regulating foreign investment. UAEG officials have told us 
that they are committed to resolving outstanding issues, 
but they have stressed that some issues must be resolved 
during FTA negotiations rather than during TIFA Council 
discussions.  For example, revising agency/commercial 
requirements will be politically sensitive because many 
nationals own profitable agencies and some less affluent 
Emiratis depend entirely on the income from providing such 
services.  UAEG reformers would plan to use the carrot and 
stick of FTA negotiations with the U.S. to make changes to 
the agencies law and the commercial companies law (at least 
as they apply to U.S. firms).  The UAE also understands 
that it needs to resolve outstanding Arab League boycott 
issues. 
 
Our Negotiating Counterpart 
--------------------------- 
 
8. (SBU) Dr. Mohammed Khalfan bin Khirbash is the well- 
regarded Minister of State for Finance and Industry.  He 
was charged with negotiating the TIFA with the U.S. and 
chairing the UAE's TIFA Council.  Ministry of Finance 
officials have told us that he will also lead the UAE side 
in any future FTA negotiations.  This is good news for us. 
He is a practical, results oriented individual, who 
received his BA from Boston University and has attended the 
Harvard Kennedy School of Government's executive education 
program.  Khirbash is particularly adept at refereeing and 
settling bureaucratic turf battles inherent to the loose, 
confederal structure of the UAE.  He also appears to have 
the support of the ruling families of both Abu Dhabi and 
Dubai. 
 
Sison