US embassy cable - 04ABUDHABI3925

UNCLAS SECTION 01 OF 03 ABU DHABI 003925 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/ARP AND H 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EFIN, TC 
SUBJECT:  SCENESETTER FOR VISIT OF CODEL THOMAS TO THE UAE 
 
1. (U) Chairman Thomas:  On behalf of Ambassador Sison, I 
would like to welcome you and your delegation to the UAE. 
Your visit comes during a dynamic period in the U.S.-UAE 
bilateral relationship.  I understand that you have been 
briefed on the UAE, so I just wanted to highlight some 
issues for your attention.  The UAE is a loose federation 
of seven emirates founded in December 1971, because the 
individual emirates realized that they were too small and 
too poor to be viable on their own.  The federal structure 
of the UAE, like that of the U.S., cedes certain powers to 
the federal government, while reserving others to the 
individual emirates.  Individual emirates maintain 
ownership of natural resources within their borders.  In 
effect, this means that Abu Dhabi, which controls 90% of 
the proven oil and gas reserves in the UAE is by far the 
richest and most powerful emirate. 
 
2. (SBU) We have requested a meeting with Sheikh Hamdan bin 
Zayed Al Nahyan, the Deputy Prime Minister and Minister of 
State for Foreign Affairs (and fourth son of UAE President 
Zayed).  He has helped the UAE and the U.S. deepen and 
expand our bilateral relations, which encompass the trade, 
military, counter-terror, and nonproliferation arenas, to 
name but a few. 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.  As you know, the UAE is one of the 
candidates for FTA negotiations with the U.S. 
 
3. (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. 
 
4. (SBU) The UAE and the U.S. have had two very productive 
TIFA Council talks in Washington.  USTR Ambassador Zoellick 
had a very successful visit here on October 13, in which he 
clearly explained the requirements for an FTA and laid out 
concerns that the UAE would need to address should we move 
to FTA negotiations.  For their part, UAE leaders welcomed 
his message and reiterated -- at a political level -- the 
UAEG's interest in negotiating an FTA with the USG and 
their willingness to address the concerns raised by 
Ambassador Zoellick. 
 
Leadership succession and political stability 
--------------------------------------------- 
 
5. (SBU) Sheikh Zayed Bin Sultan Al Nahyan, the UAE's 
leader since the Emirates became a federation in 1971, is 
in failing health.  We strongly recommend against raising 
this issue with Emirati interlocutors, as they are 
sensitive about this issue and a rumor mill that has been 
in overdrive.  When Sheikh Zayed passes away, his eldest 
son, Abu Dhabi Crown Prince Sheikh Khalifa, will succeed 
him both as Ruler of Abu Dhabi and as President of the UAE. 
In November 2003, Sheikh Zayed issued a decree appointing 
his third eldest son, Mohammed, to the position of Deputy 
Crown Prince of Abu Dhabi, with the explicit stipulation 
that Mohammed would become Crown Prince of Abu Dhabi when 
that post became vacant.  The appointment of Mohammed, who 
is also the Chief of Staff of the UAE Armed Forces, 
clarified the succession line and put an end to years of 
speculation about likely successors. 
 
6. (U) You will be meeting Sheikh Zayed's  fourth eldest 
son, Hamdan Bin Zayed.  The de facto Foreign Minister since 
1990, HbZ is highly capable and works to cement political 
and economic ties with UAE's key partners.  He is a key 
bilateral interlocutor and proponent of an FTA.  He plays a 
critical role in coordinating policy among the seven 
emirates and exerting discipline in the cabinet.  He chairs 
the Red Crescent Authority that took lead on UAE's 
humanitarian assistance to Afghanistan, Iraq and Palestine. 
Hamdan Bin Zayed, like his brother Mohammed, generally 
travels to Washington once a year to meet with senior 
Administration officials.  Hamdan Bin Zayed understands 
English well, but prefers to speak in Arabic, using an 
interpreter.  He is addressed as "Your Highness." 
 
The Economy 
----------- 
 
7. (SBU) President Zayed has ruled over a country that has 
grown rapidly in the 33 years since the country was 
founded.  The UAE is both a rich and rapidly developing 
country: the third largest in the Arab world behind Saudi 
Arabia and Egypt.  With a per-capita GDP of nearly $20,000 
and an estimated real economic growth rate this year of 
5.5% to 6%, it is 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. 
 
8. (SBU) Although the UAE has a generally open economy with 
opportunities for U.S. businesses, we have raised a few 
concerns with the UAE in the context of a potential FTA. 
These concerns the UAE labor law, rules regulating foreign 
investment, and some Arab league boycott concerns.  We have 
raised all of these concerns with the UAE and they have 
committed to working with us to address them. 
 
9. (SBU) The current UAE Labor Law does not provide for 
labor unions, the right of association or collective 
bargaining.  The UAEG is in the process of revising its 
labor law to allow for the creation of labor unions and 
drafting a law that regulates them.  The UAEG is concerned 
about balancing its commitment to improving workers' rights 
with the security and social challenges of having 98 
percent of the private sector workforce (and 80 percent of 
the entire population) foreign.   UAEG officials, however, 
have told us that they understand that their labor laws 
need to meet ILO standards and that they are working to 
ensure that their revised labor law and a supplemental law 
regulating labor unions meet these standards. 
 
10. (SBU) UAE laws limit foreign ownership of most 
companies to 49 percent and provide for local agents or 
distributors for companies that wish to export to the UAE. 
These laws provide a disincentive for foreign investors and 
we have explained that they would violate our insistence on 
"national treatment" for U.S. investors in any FTA.  Senior 
UAEG officials have explained that this is a sensitive 
issue for many UAE nationals, who rely on agency or 
distributor relationships for much of their income, but 
have committed to working on resolving these issues in the 
context of a FTA.  UAE and Emirate level leaders will need 
to engage with their constituents to address their concerns 
on this matter.  We understand that they have begun this 
process. 
 
11. (SBU) Although the UAE no longer enforces the secondary 
or tertiary aspects of the Arab League Boycott on Israel, 
U.S companies have faced contracts in the UAE with boycott 
provisions.  In many cases, we understand that the UAE 
companies and government agencies in question were 
recycling old forms and resolved the issue after 
discussions with the U.S. company.  We have raised this 
problem with senior members of the UAEG, who have assured 
the UAE had renounced implementation of the Secondary and 
Tertiary aspects of the Arab League Boycott and would not 
boycott any U.S. company.  After Ambassador Zoellick's 
visit, the UAE Ministry of Economy and Commerce instructed 
government agencies and parastatal companies to resolve 
this problem.  The UAEG also identified a point of contact 
for companies that face boycott requests. 
 
The Political Relationship 
-------------------------- 
 
12. (SBU) As the UAE is looking to develop a closer 
economic relationship with the U.S., its political 
relationship with the U.S. is strong.  The UAEG has been a 
close partner of the U.S., especially in the global war on 
terror and in efforts to promote regional stability.  On 
the military side, the UAE provides access to U.S. forces 
and hosts more ship visits than any port outside the United 
States.  The UAE provides hanger and ramp facilities for 
U.S. aircraft at Al-Dhafra Airbase and dedicated deepwater 
berthing space in the Port of Jebel Ali that can 
accommodate aircraft carriers.  The UAE has also cooperated 
closely with the U.S. and the international community in 
efforts to cut terrorist financing. 
 
13. (U) The UAE has been a strong supporter of the new 
Afghan and Iraqi governments both politically and 
financially.  In Iraq, for example, the UAE has built or 
rebuilt hospitals, provided food and medical supplies, and 
(under an agreement with the Germans) provided joint 
training to Iraqi police in the UAE.  The UAE has also 
issued strong public statements in support of Iraq's 
interim government, condemned acts of terror in Iraq, and 
warmly welcomed the various Iraqi authorities, including 
both President Al Yawar and Prime Minister Allawi.  The UAE 
has been Iraq's largest trade partner after the war with 
exports and re-exports valued at $1 billion. 
 
14. (U) The UAE Government's human rights record is 
generally good.  However, we have raised concerns with them 
about the trafficking in persons problem, primarily 
trafficking in women for the purposes of sexual 
exploitation and trafficking in young boys (the majority 
from South Asia) to work as camel jockeys.  The UAE was 
dropped to Tier Two in the 2004 Trafficking in Persons 
report due to lack of appreciable progress in combating sex 
trafficking.  The UAE showed some progress last year in 
combating trafficking in children to work as camel jockeys. 
However, over the past few months, several non-governmental 
organizations and media outlets, including the Home Box 
Office, have reported that this problem persists. 
15. (U) Ambassador Sison returns to the country November 2 
and will welcome you at the Airport. 
 
Albright