US embassy cable - 04MANAMA1792

C O N F I D E N T I A L MANAMA 001792 
 
SIPDIS 
 
DEPARTMENT FOR NEA/ARPI 
DEPARTMENT PASS TO USTR JASON BUNTIN 
 
E.O. 12958: DECL: 11/29/2014 
TAGS: ETRD, ECON, PREL, BA 
SUBJECT: GCC COMPLAINS US-BAHRAIN FTA BREAKS THE RULES 
 
 
Classified By: Charge D'Affaires Susan L. Ziadeh for reasons 1.4 (b) an 
d (d) 
 
1. (C) Summary:  A November 23 Reuters article generated a 
flurry of responses in the Bahraini press including 
front-page coverage of comments by the Prime Minister. The 
article quoted an unnamed Gulf Cooperation Council (GCC) 
official who said GCC member states believed the U.S.-Bahrain 
Free Trade Agreement (FTA) violated Bahrain,s regional 
commitments.  We expect that this issue will be raised at the 
upcoming GCC ministerial conference to be held in Bahrain in 
early December, but understand that the GOB is not concerned 
they have upset the apple cart.  We believe Bahrain is 
counting on continued regional interest in following 
Bahrain's lead and that the GOB may pursue bilateral 
engagement with the most likely source of these comments, 
Saudi Arabia.  End Summary 
 
2. (U) The November 23 Reuters article quoted an anonymous 
GCC official who said that member states, particularly Saudi 
Arabia, were "perturbed" at Bahrain,s violation of regional 
commitments.  The article cited Saudi concerns that duty-free 
U.S. goods would flood its market via the Bahrain causeway. 
The GCC official added that all member states, including 
Bahrain, remained committed to collective rather than 
bilateral negotiations, but that the FTA was a reward for 
Bahrain, which had succumbed to significant "political 
pressure" from the U.S.  The Reuters article also quotes 
Yousif Humoud, Director of Economic Planning at the Ministry 
of Finance and National Economy (MOFNE), who denies Bahrain 
is under any pressure from its regional partners. 
 
3. (U) In a November 29 article in the English-language 
Bahrain Tribune covering statements made by Prime Minister 
Sheikh Khalifa bin Salman al Khalifa at his majlis the day 
before, the Prime Minister stressed that other GCC states had 
entered into bilateral agreements in the past without similar 
objections.  He also reaffirmed that a preferential trade 
relationship with the U.S. was well within Bahrain,s rights. 
 
4. (C) In a follow-up conversation, with EmbOff, Humoud noted 
that Bahrain had closely consulted with its GCC partners 
throughout the negotiation.  He said the dissatisfaction 
reported in the article was not something the GOB was getting 
through official channels.  Humoud also believes the 
announcement on November 15 that two other GCC members, the 
UAE and Oman, would enter into FTA negotiations with the U.S. 
was evidence that the complaints were not serious.  Humoud 
reaffirmed that the FTA was consistent with GCC commitments 
on preferential treatment.  He noted that GCC states can 
not/not give any country with which they have a bilateral 
agreement any preference that exceeds the preference granted 
to GCC member states.  According to Humoud, in this case the 
privileges granted are the same and therefore within the 
bounds of Bahrain,s GCC commitments. 
 
5. (C) A November 25 article in the Arabic Al-Ayam newspaper, 
in which we believe the anonymous source quoted is Humoud, 
cites an agreement reached in the GCC Financial and Economic 
Affairs Committee on December 14, 2002 that stipulates that 
tariffs on goods imported into any GCC state, which may be 
exempt from duty based on a bilateral trade agreement, can be 
levied at the border of the GCC state into which they are 
re-imported.  Therefore although U.S. goods are cheaper in 
Bahrain, their import via Bahrain will not effectively reduce 
any tariffs another GCC state may choose to levy on U.S. 
goods. 
 
6. (C) Comment:  It is our sense that the GOB, although eager 
to lay down a marker in the press before the agreement goes 
before Parliament, believes there is little substance to 
these claims.  Embassy Manama understands that King Hamad 
raised this issue in his meeting with Secretary Powell, and 
that he sees the FTA as purely a bilateral issue with the 
U.S.  Comments from MOFNE staff affirm that Bahrain sees no 
conflict between the FTA and ongoing liberalization within 
the GCC.  End Comment. 
ZIADEH