US embassy cable - 05DUBAI57

C O N F I D E N T I A L SECTION 01 OF 03 DUBAI 000057 
 
SIPDIS 
 
STATE FOR NEA/ARP, NEA/RA, EB 
STATE PASS USTR 
 
E.O. 12958: DECL:  1/5/2015 
TAGS: ECON, ETRD, EFIN, PREL, TC 
SUBJECT: PRESIDENT OF DUBAI CHAMBER OF COMMERCE EXPRESSES CONCERN 
ABOUT FTA NEGOTIATIONS 
 
REF: A) DUBAI 5011   B) ABU DHABI 3834  C) DUBAI 4507 
 
 
CLASSIFIED BY: Jason L. Davis, Consul General, Dubai, UAE. 
REASON: 1.4 (b) 
 
 
1. (C) Summary: Obaid Al-Tayer, prominent Dubai businessman and 
President of the Dubai Chamber of Commerce and Industry (DCCI), 
told Consul General December 29 that the process of negotiating 
a US-UAE Free Trade Agreement "will not be easy."  That said, 
Dubai businessmen were not against the FTA; rather, they just 
wanted to ensure that the final product was a good one. 
Al-Tayer highlighted several concerns that he said were being 
raised by Dubai merchant families.  Among them: inadequate 
information sharing by the UAEG negotiators; a perception that 
the USG position was inflexible; fears that a bilateral FTA 
might endanger Dubai's access to the Saudi market and further 
isolate Saudi Arabia; concerns about the agency law; and worries 
that an FTA might lead to even greater numbers of Indians and 
Pakistanis moving to Dubai. End Summary. 
 
Buy-In from Businessmen 
----------------------- 
 
2. (C) DCCI President Obeid Al-Tayer expressed concern to Consul 
General December 29 that the concerns of Dubai businessmen and 
merchant families were not being taken into account by the UAE 
negotiating team.  "When we tell them we want to be a part of 
the process, they tell us that the U.S. side insists that only 
government officials can be a part of the negotiations.  But we 
are concerned that our bureaucrats may not be our best 
negotiators and may not have sufficient knowledge of what is 
important to our business community."  Warning that "these 
negotiations are not going to be easy," Al-Tayer said it would 
be very important to secure the buy-in of the business 
community, since they were the ones who would be "implementing" 
whatever agreements were signed.  CG pointed out that while it 
might not be possible for business to be present at the 
negotiating table, there was no reason they could not provide 
the UAEG with input on their views and concerns.  It would be 
natural for the views of businessmen to be taken into 
consideration. 
 
3. (C) Al-Tayer said he thought the businessmen were being cut 
out because UAEG officials believed they were against the 
agreement.  This was not true:  as he himself had recently told 
Dubai Crown Prince Mohammed bin Rashid (MbR) and UAE Minstate 
for Foreign Affairs Hamdan bin Zayid (HbZ), "We recognize that 
there has been a political decision to go ahead with the FTA, 
and we are not against that decision; we just want to ensure 
that the final agreement is in the best long-term interests of 
the UAE." Asked how MbR and HbZ had responded, Al-Tayer said 
they had been supportive, but had given the impression that 
there was little point in discussing the concerns of the 
businessmen because the U.S. had a standard FTA that it signed 
with every country that couldn't be altered. If Ambassador 
Zoellick's comment during his visit that the U.S. "doesn't take 
a 'cookie-cutter' approach is true," he said, then "someone must 
have misinformed the Sheikhs." 
 
GCC Concerns: Don't Alienate Saudis 
----------------------------------- 
 
4. (C) Al-Tayer asked why the FTA could not be negotiated with 
the entire GCC rather than bilaterally with each country. There 
was a perception, he added, that the U.S. was strong-arming 
countries into doing it bilaterally in order to divide and 
thereby weaken the GCC.  Assuring Al-Tayer that there was no 
truth to that conspiracy theory, CG said it was his 
understanding that the decision to negotiate bilaterally had 
been strongly supported by the UAEG because it was the only 
realistic way of getting an FTA in a timely fashion. Weren't 
those in Dubai who talked about the need to go through the GCC 
essentially saying that they were opposed to the FTA in 
principle, and arguing for GCC involvement in the belief that 
doing so would delay the agreement indefinitely? 
 
5. (C) Acknowledging that there might be some truth to this 
perception, Al-Tayer nonetheless argued that there was much more 
to it than that.  The biggest concern in Dubai was to avoid 
endangering Dubai's access to the Saudi market.  Whatever 
happened with the FTA, it would be critical to "contain" or 
manage the Saudi reaction.  Dubai was extremely vulnerable in 
this regard; Saudi Arabia was Dubai's second biggest export 
market after Iran.  According to certificates of origin issued 
in Dubai, Dubai's re-exports to Saudi Arabia last year were UAED 
10.5 billion, and by early December this year they had already 
reached UAED 13.5 billion -- and that didn't even include 
"national products," i.e those with at least 40 percent value 
added in Dubai (according to the GCC customs union rules, 
"national products" are allowed duty-free entry to other GCC 
countries, whereas re-exports are subject to 5 percent duty, 
collected by the receiving country.) Dubai had a manufacturing 
sector that was dependent on the Saudi market for up to 70 
percent of its sales, particular in the food sector.  "If the 
Saudis were to retaliate to a bilateral FTA by requiring their 
imports to go through Saudi ports, and not through Dubai, we 
would be finished," Al-Tayer suggested. 
 
6. (C) There were other reasons why it made sense to "work with 
the Saudis rather than pushing them to close up," Al-Tayer 
proposed. "We want the Saudis to be more integrated with us, not 
less; we believe that through engagement with them we can slowly 
change their culture -- just as we have become more tolerant and 
cosmopolitan through our history of interaction with other 
cultures." 
 
Agency Law 
---------- 
 
7. (C) Al-Tayer said there were many misperceptions regarding 
Dubai's concerns about the Agency Law.  First among them was 
that this was a "Dubai only" issue.  In reality, at least 50 
percent of registered agency relationships were in Abu Dhabi. 
Secondly, many in Dubai were wondering why it was necessary to 
"scrap" the Agency Law altogether, which was the only solution 
the UAEG negotiators seemed willing to consider.  It would be 
one thing to offer a waiver to US companies as part of the give 
and take that the FTA would bring.  But why should negotiations 
with the U.S. lead to instant benefits, in exchange for nothing, 
to European or Indian companies?  That is what would happen if 
the Agency Law were "cancelled" as part of the FTA negotiating 
process. In response to a direct question, Al-Tayer confirmed 
CG's impression that there was essentially no one in Dubai who 
was opposed to granting new-to-market US companies wanting to do 
business in Dubai an exemption to the Company and Agency Laws in 
the context of an FTA; the only concern was finding a mechanism 
for protecting existing agency and company relationships. Even 
in those cases there was no desire to force an unsatisfied 
company to remain with agent that was not providing acceptable 
service; rather there was a desire to find a mechanism for 
ensuring that the relationship was being broken due to genuine 
failure on the part of the agent rather than something more 
"arbitrary." 
 
Immigration Concerns 
-------------------- 
 
8. (C) A final concern raised by Al-Tayer was a fear among 
Dubayyans that an FTA with the U.S. might lead to a huge influx 
of Indians moving to Dubai from their home country. The danger, 
as he saw it, was that Indian-Americans would use the FTA as a 
mechanism for moving their extended families from their home 
countries to Dubai. "It is one thing if we are talking about a 
manufacturing operation, but our fear is that they Americans of 
Indian descent will open grocery stores and shops and then bring 
all of their cousins and nephews to staff them...this 
(immigration from India) is a very sensitive matter for us." 
When CG questioned why an FTA with the U.S. would have any 
bearing on UAE policies regarding admission of guest workers 
from India, Al-Tayer said that UAE nationals who owned 
businesses here had the right to bring in guest workers, and 
that it was his understanding that granting "national treatment" 
to US companies would allow them to do the same. 
 
Comment 
------- 
 
9. (C) Some of Al-Tayer's concerns appear to reflect a 
fundamental misunderstanding of a bilateral FTA (namely that the 
U.S. would negotiate market access on behalf of other countries 
and that national treatment equates to an unrestricted 
immigration right).  USG officials have addressed both questions 
in informal conversations with the UAEG, and we believe that 
they understand that neither is the case.  Given the UAEG's 
concerns about demographic imbalances, we do not believe that 
they will -- even inadvertently -- assume that national 
treatment equates to an unlimited immigration right. 
Al-Tayer's comments about access to the Saudi market demonstrate 
the effectiveness of the Saudi campaign in raising tension among 
Dubai businesses.  In our conversations with the UAEG, however, 
they have stressed their intention to move forward with a FTA 
and their belief that the "Saudi problem" is one that can and 
should be addressed at the technical level and for which there 
are reasonable solutions. 
 
10. (U) This message was coordinated with Embassy Abu Dhabi. 
 
DAVIS