US embassy cable - 05ABUDHABI675

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 000675 
 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 12958: DECL: 02/14/2015 
TAGS: CVIS, ECON, ETRD, PREL, TC 
SUBJECT: AMERICANS AND EMIRATIS HIGHLIGHT POSITIVES OF FA, 
BUT NOTE CONCERNS 
 
REF: DUBAI 506 
 
(U) Classified by DCM Richard A. Albright, reasons 1.4 (b) 
and (d). 
 
1.  (SBU) Summary:  State Department Special Representative 
for Commercial and Business Affairs Frank Mermoud supported 
our strong commercial relationship and highlighted how a free 
trade agreement would enhance trade and investment during his 
January 29-31 visit to the UAE.  His interlocutors expressed 
optimism at the opportunities of a Free Trade Agreement 
between the U.S. and the UAE, but articulated concerns on 
specific points.  Major areas of concern for American 
businesses remain the Agency and Companies Laws, property 
ownership, and broader issues of enforceability and 
transparency.  Emirati business leaders focused on potential 
changes to the legal framework that have long supported UAE 
nationals, particularly the Agency and Companies Law, and 
their concerns about whether changes to the law will apply to 
only American companies or be a blanket change.  End Summary. 
 
2.  (U) Special Representative Mermoud discussed trade 
liberalization with UAEG officials and U.S. and UAE business 
representatives during his January 29-31 visit in Abu Dhabi 
and Dubai.  He met with Chairman of the Abu Dhabi Department 
of the Economy, Sheikh Hamed bin Zayed; Ministry of Economy 
Assistant Under Secretary for International Cooperation, 
Abdullah Al-Saleh, Mubadala COO and Abu Dhabi Executive 
Committee Member, Khaldoon Al-Mubarak, Director General of 
the Abu Dhabi Chamber of Commerce Mohammed Abdullah, and a 
number of U.S. and Emirati business representatives. 
 
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UAE Perspectives on FTA 
------------------------ 
3.  (SBU) Chairman of the Abu Dhabi Department of Economy 
Sheikh Hamed bin Zayed al-Nahyan (a younger half-brother of 
UAE President Sheikh Khalifa) emphasized the UAE,s 
commitment to a bilateral FTA.  He cited the example of the 
long stalled GCC-EU trade agreement negotiations as an 
example of the difficulty of achieving agreements with the 
GCC.  Sheikh Hamed told Mermoud that the UAEG had asked the 
Europeans to abandon the GCC-EU process in favor of bilateral 
approaches with GCC countries.  (Note:  French DCM confirmed 
to DCM February 1 that the UAEG had approached France, UK and 
Germany with this request.  End note.). 
 
4.  (SBU) Both public and private sector Emiratis saw an FTA 
as an &opportunity, and not a threat,8 however they voiced 
some concerns about the impact of a repeal of Agency and 
Companies Laws.  Although many Emiratis said they were 
willing to do this for American companies (even though some 
people would be adversely affected by this decision), they 
expressed opposition to repealing these laws for all foreign 
companies.  In particular, Emiratis expressed security and 
economic concerns if Indian or Pakistani companies (which are 
the two largest expatriate groups in the UAE) were able to 
operate independently of an Emirati partner since they could 
quickly dominate the local economy. 
 
5.  (SBU) Abu Dhabi Chamber of Commerce Director General 
Mohammed Omar Abdullah commented that an FTA would bring 
long-term benefits to the UAE.  He was more concerned about 
the immediate impact on UAE businesses, since the largest 
markets for Emirati businesses lie in Asia or other GCC 
countries, and production capacity in the UAE is limited.  He 
stressed that the UAE would need to plan how to take full 
advantage of the opportunity afforded by the FTA.  Khaldoon 
Al Mubarak, COO of Mubadala Development and a member of the 
Abu Dhabi Executive Council, was enthusiastic about being a 
partner to the USG and US private sector since they have had 
historically good working relationships with US companies.  A 
Mubadala subsidiary, Liwa Petroleum, recently partnered with 
Occidental Petroleum (one of its Dolphin partners) to win 9 
of 15 exploration blocks in Libya.  Liwa Petroleum is a 10 
percent minority partner with Oxy. 
 
6.  (C)  Assistant Under Secretary for International 
Cooperation at the Ministry of Economy and Planning, Abdullah 
Al Saleh (protect), noted that the UAE was already engaged in 
a step by step process to liberalize sectors of the economy 
by privatizing and allowing greater foreign investment and 
ownership, for example.  He said that he thought the UAE 
would be able to open up most sectors to American businesses, 
but stressed that some sectors, such as energy, would be much 
more difficult for the UAE to liberalize.  However, he noted 
that while the individual emirates retain ownership of the 
energy sector, the UAE has historically entered into 
production sharing agreements with foreign partners. 
Al-Saleh stated that the UAE is already opening up the 
insurance sector and noted that he thought the U.S. companies 
could have more access to the medical services sector, but 
that the UAE would not want to open that sector up completely 
to other countries, such as India. 
 
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American Perspectives - FTA Should Resolve Agencies Law 
--------------------------------------------- ---------- 
 
7.  (SBU) While enthusiastic about the prospect of a Free 
Trade Agreement, local American businesspeople in Abu Dhabi 
and Dubai told Mermoud about specific issues they wanted to 
see addressed.  They raised the most concern about the Agency 
and Companies laws.  While some companies are happy with 
their Emirati sponsors or agents and would choose to keep 
them, many Americans noted that UAE law and practice made it 
almost impossible to terminate an agency relationship with a 
non-performing sponsor.  A concern for some companies with 
high levels of intellectual property was the potential that 
an Emirati partner who controlled 51 percent of the business 
in the UAE could gain access to their trade secrets. 
8.  (SBU) American businesspeople also expressed concern 
about inability to own property.  In the context of 
industrial property, one American compared it to &building 
on quicksand8 since a company cannot own its factories or 
other physical plants.  For companies with a long term 
presence, steadily rising rents are becoming a major cost. 
 
9.  (SBU) Another U.S. business concern is the issue of 
enforcement mechanisms, and transparency.  Several people 
raised concerns that amending laws and regulations would not 
remedy problems unless there are sufficient enforcement 
mechanisms and political will to carry them out. 
Specifically, they questioned whether close personal 
relationships among Emirati business leaders would continue 
to trump legal rights.  U.S. businessmen cited cases where 
&personal contacts8 among Emiratis resulted in stopping or 
delaying payment on an irrevocable letter of credit. 
 
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Abu Dhabi Investment Plans 
--------------------------- 
 
10.  (SBU) Sheikh Hamed also discussed Abu Dhabi,s 
development and privatization plans, emphasizing his view 
that the region needs economic reform before political 
reform.  He stated Abu Dhabi,s privatization strategy is to 
develop strategic industries that produce intermediate 
products such as steel, aluminum, and chemical products.  Abu 
Dhabi plans to privatize small and medium companies (under 
the Sheikh Khalifa Program for small and medium enterprises) 
which could then utilize the products from the strategic 
enterprises.  He also stated a commitment to privatizing the 
services sector and projects involving businesswomen in this 
second stage of development.  Abu Dhabi also plans to 
introduce public and private partnership schemes.  They have 
begun a pilot program to encourage international investment 
in the construction industry using a Build-Own-Operate model. 
 
 
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Visas 
------ 
 
11.  (SBU) Both Emiratis and U.S. businesses took advantage 
of Mermoud,s visit to raise concerns about visas and 
treatment in the U.S.  The US educated CEO of the Abu Dhabi 
Securities and Commodities Authority said he had hoped to 
send his son to Harvard, but his son was insisting on 
studying in Australia which he saw as a more welcoming 
environment for Arab students.  Several U.S. business 
representatives stressed that they were losing business 
because their Emirati colleagues perceived the visa and 
border process as time-consuming and difficult.  Mermoud 
stressed that the President was aware of the problem and had 
instructed US agencies to improve our visa procedures while 
protecting homeland security.  He noted that the process has 
improved considerably over the past two years. 
 
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Taxes 
------ 
 
12.  (U) U.S. businesses also argued for a continuation of 
the Foreign Earned Income Exclusion.  They argued 
passionately that repealing this exclusion would only serve 
to assist other countries, which do not tax their 
expatriates.  They explained that American workers overseas 
are excellent promoters of U.S. products and responsible for 
exports.  Unfortunately, many Americans are being priced out 
of the market.  Repealing the exemption will only exacerbate 
the problem, they said. 
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Comment 
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13.  (SBU)  Overall, all parties were optimistic about the 
possibilities of a Free Trade Agreement for boosting trade 
and investment between the U.S. and UAE.  Some individuals 
expressed concerns about specific clauses of an FTA that 
could impact their interests.  Mermoud,s visit served to 
raise the profile of the FTA, in a positive way, in advance 
of the upcoming negotiations. 
SISON