US embassy cable - 05MANAMA38

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 000038 
 
SIPDIS 
 
STATE FOR NEA/ARPI BERNS 
STATE PLEASE PASS USTR BUNTIN 
COMMERCE FOR ITA/MAC/ONE LOUSTAUNAU AND HOFFMAN 
GENEVA FOR USTR 
 
E.O. 12958: DECL: 01/05/2015 
TAGS: ECON, ECIN, ETRD, PREL, BA 
SUBJECT: BAHRAIN FTA: FULL SPEED AHEAD DESPITE PROTESTS 
FROM SAUDI ARABIA 
 
REF: A. MANAMA 0024 
     B. 04 MANAMA 1814 
 
Classified By: Ambassador William T. Monroe for reasons 
1.4 (b) and (d). 
 
1.  (C) Summary.  GOB officials were quick to defend their 
right to sign an FTA with the United States after several 
news accounts cited Saudi Arabia's Finance Minister as saying 
his country would impose duties on re-exported foreign goods 
if the U.S.-Bahrain agreement was ratified.  Youssef Hamoud 
of Bahrain's Ministry of Finance and National Economy said 
Bahrain had always understood that re-exporting U.S. goods to 
other GCC states would result in tariffs, and that Bahrain's 
primary goal was to increase foreign direct investment.  He 
stated Saudi Arabia is feeling left out and urged Washington 
to support Saudi as it seeks to become a member of the WTO. 
Business leaders have told us they wish to push ahead with 
ratification as quickly as possible despite the Saudi 
reaction.  End Summary. 
 
2.  (U) A January 4 Bahraini Gulf Daily News article cited 
Saudi Arabia's Finance Minister as saying his country would 
impose duties on foreign goods re-exported through Bahrain if 
"it put into effect a recently signed free trade agreement 
with the U.S."  The UAE Gulf News also covered remarks by the 
Saudi Finance Minister on January 4 by citing the minister as 
saying, "unilateral preferential trade agreements signed by 
some GCC states with countries outside the council undermine 
the GCC and weaken its negotiating position."  This echoes 
comments made by Saudi Foreign Minister Saud Al Faisal at the 
December 3 - 5 "Gulf Security Dialogue" conference in Manama 
(Ref B). 
 
3.  (U) GOB officials and representatives were quick to 
respond to the Saudi accusations.  In a January 5 Gulf Daily 
News article, parliament member Abdulnabi Salman stated, 
"Article 31 of the GCC law regulating economic co-operation 
fully supports Bahrain's right to sign a bilateral agreement. 
 (Bahrain) has every right to ratify the agreement and I urge 
members of the parliament and Shura Council not to be 
influenced by others who try to stop the deal."  On January 
5, the Bahrain Tribune cited an unnamed official claiming 
"five of the six GCC countries have agreed that after the 
refusal by the U.S. of collective negotiations with the GCC 
bloc, the members could go ahead with bilateral negotiations 
in order to ensure the common interests of the region.  The 
accord to consider such conditions in free trade agreements 
between GCC states and the U.S. as exceptional was reached by 
the GCC financial and economic committee at its 66th meeting 
in Manama on December 18." 
 
4.  (C) Director of Economic Planning at the Ministry of 
Finance and National Economy Youssef Hamoud told Econoff on 
January 5 that Bahrain understood going into the negotiations 
that re-exporting U.S. goods to other GCC states would result 
in application of a tariff.  He stated Bahrain signed the 
agreement to increase foreign direct investment, not to 
re-export goods tax free.  He said there is misunderstanding 
and misquoting taking place in the newspapers.  When asked to 
comment on the Saudi reaction, Hamoud stated it is 
understandable as they are feeling left out especially since 
Oman and UAE also plan to start FTA negotiations soon with 
the U.S.  Hamoud urged Econoff to inform appropriate USG 
officials that Washington should support Saudi Arabia's bid 
to become a member of the WTO. 
 
5. (U) Business leaders appear unfazed by the Saudi reaction. 
 One banker told Econoff that a Saudi lack of economic 
liberalization could benefit Bahrain as foreign companies 
might be more apt to relocate to Manama from the eastern 
province.  Other business representatives are urging 
immediate ratification of the FTA in order to get a head 
start on their neighbors in Oman and the UAE. 
 
6.  (C) Comment.  Bahrainis from both the public and private 
sector reaffirm their commitment to proceeding expeditiously 
with ratification and implementation of the FTA.  In fact, 
the King said so directly to the Ambassador January 3 (Ref 
A).  However, they also want to do what they can to soothe 
their large neighbor to the west.  Many Bahrainis have taken 
up a call for closer U.S. engagement with the Saudis on WTO 
accession, perhaps hoping that progress in Geneva will blunt 
Saudi Arabia's more local concerns. 
 
MONROE