US embassy cable - 05ABUDHABI1438

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001438 
 
SIPDIS 
 
STATE FOR EB/TPP/BTA, NEA/ARPI, NEA/PI 
STATE PASS USTR FOR DOUGLAS BELL 
 
E.O. 12958: DECL: 02/04/2025 
TAGS: ETRD, EINV, ELAB, ECON, PREL, USTR, TC, FTA 
SUBJECT: US/UAE FTA FIRST ROUND 
 
Classified By: (U) Classified by Ambassador Michele J. Sison for reason 
s 1.4 (b) and (d). 
 
1. (C) Summary: The United States and the UAE held the first 
round of Free Trade Agreement negotiations in Abu Dhabi, 
March 8-10.  UAEG leaders are enthusiastic about the prospect 
of an FTA with the United States.  After a somewhat slow 
start the negotiators made significant progress, concluding 
the round on an upbeat, positive note.  With sufficient 
progress by the Emiratis before the next round, it should be 
possible to close on 3-4 chapters and make significant 
progress on the remainder.  While there were no surprises 
raised in the negotiations, it is clear that resolving the 
issues of the Agency and Company laws will be challenging. 
The U.S. and the UAE agreed to hold a second round of 
negotiations in early May.  Press coverage of the 
negotiations was positive, and nearly all articles included 
quotes from the lead negotiators about a bilateral FTA not 
violating the UAE's GCC obligations.  The UAE business 
community, while cautiously optimistic about the FTA, is 
frustrated with a lack of transparency from the UAEG.  It 
will be incumbent on the UAEG to increase its outreach to the 
business community in the coming months.  End summary. 
 
ENTHUSIASTIC LEADERS, NERVOUS NEGOTIATORS 
----------------------------------------- 
 
2. (SBU) UAE leaders are enthusiastic about an FTA with the 
United States and are committed to the process.  UAE lead 
negotiators, Minister of State for Financial and Industrial 
Affairs Mohammad Khalfan bin Khirbash and Minister of Economy 
and Planning Sheikha Lubna Al Qasimi, acknowledged public 
concerns about possible negative effects of an FTA for 
certain companies and individuals in the UAE, but they both 
noted the UAEG leadership's staunch commitment to moving 
forward.  Minister of Information and Culture, Sheikh 
Abdullah Bin Zayed Al Nahyan explained that the FTA with the 
United States is a critical part of the leaders' efforts to 
keep the UAE a "modern success story." 
 
3. (C) Working-level negotiators were nervous that they would 
unintentionally commit the UAE to unfavorable terms, and 
focused on the meaning and implications of the proposed text. 
 Many of the negotiating groups reported significant progress 
by the end of the first round and agreed on an aggressive set 
of deliverables between now and the next round.  The Central 
Bank Governor, who chaired the Second Trade Investment 
Framework Agreement meeting in Washington last October, 
attended the Financial Services sub-group, sending a message 
to the negotiators that he was personally committed to coming 
out of the first round of negotiations with positive 
momentum. 
 
AUSTR NOVELLI DISCUSSES GCC, LABOR DURING BILATS 
--------------------------------------------- ---- 
 
4. (SBU) AUSTR Novelli held separate bilateral meetings with 
Dubai Crown Prince Mohammed Bin Rashid Al Maktoum (MBR), 
Minister of Information and Culture Sheikh Abdullah Bin Zayed 
Al Nahyan, and Minister of Labor Dr. Ali Bin Abdullah Al 
Ka'abi. Sheikh Abdullah and Dr. Al Ka'abi both admitted that 
the UAE has not finished drafting legislation to allow for 
collective bargaining and right of representation, but the 
Ministry of Labor is working with the ILO to ensure that the 
draft law conforms to ILO standards.  Dr. Al Ka'abi explained 
that the UAE is considering a staged approach to the right to 
representation that may initially permit membership for UAE 
nationals only.  He said the ILO agreed in principle to this 
strategy, but would come to the UAE at the end of March or 
early April to review the specifics of the draft law.  In a 
country where 91 percent of workers are expatriates, UAE 
leaders have serious national security concerns over the 
prospect of allowing trade unions.  According to Sheikh 
Abdullah, "this issue is not cultural or economic -- it has 
to do with our existence."  AUSTR Novelli noted the 
importance of the UAE putting in place an ILO-compliant labor 
law in a timely fashion if this agreement is to be 
successfully ratified in the U.S. Congress. 
 
5. (SBU) In light of recent publicity regarding Saudi 
Arabia's discontent with bilateral FTAs, Sheikh Abdullah said 
that UAE businesses are worried that an FTA with the United 
States would create problems with trading with Saudi Arabia 
in the future.  According to Sheikh Abdullah, the Saudis do 
not understand that other Gulf countries are seeking to 
obtain the benefits of bilateral FTA's.  The Saudis think the 
other GCC states are doing it to taunt Saudi Arabia.  Echoing 
other leaders' concern over the challenges of bringing Saudi 
Arabia up to the level of the other GCC countries in terms of 
trade liberalization, MBR said it would never be possible to 
conclude a multilateral US/GCC FTA and therefore GCC 
countries needed to pursue bilateral agreements. (Note: 
Novelli's discussions about camel jockeys will be reported 
septel.) 
 
POSITIVE PRESS 
-------------- 
 
6. (U) Optimistic soundbites by Dr. Khirbash were widely 
reported in the run-up to and during the negotiations, as 
were positive comments from AUSTR Novelli's multiple press 
interactions.  The press also stressed her assertion that 
there are no political preconditions for an FTA, and that the 
U.S. will not demand lifting the Arab League boycott on 
Israel.  In particular, the press focused on the lead 
negotiators' comments that a bilateral FTA does not 
contradict the UAE's GCC obligations.  The press articles 
highlighted that, with the exception of Saudi Arabia, all of 
the other Gulf states are keen on entering into bilateral 
FTAs with the United States. The press also highlighted 
Jordan's significant economic growth after the implementation 
of its FTA with the U.S. as a demonstration of how the UAE 
economy will benefit. 
 
LACK OF TRANSPARENCY CONCERNS UAE BUSINESS COMMUNITY 
--------------------------------------------- ------- 
 
7. (SBU) The Dubai business community expressed frustration 
at the UAE Government,s lack of transparency on the process 
of the FTA negotiations.  Obaid Al Tayer, President of the 
Dubai Chamber of Commerce and Industry (DCCI) claimed that 
not a single UAEG official had met with the business 
community to provide information or allay fears. (Note: The 
UAEG has consulted with the UAE business community -- 
including the DCCI -- but the extent and depth of the 
consultations was clearly not sufficient to allay the 
business community's concerns, and government negotiators 
have made no secret of their strong preference to keep the 
Dubai Chamber at arm's length.)  In response to Al Tayer,s 
claims that the UAEG was using &confidentiality8 agreements 
with the U.S. to restrict access, Novelli was clear that U.S. 
policies do no such thing, and the U.S. actively consults 
with the private sector; witness the meeting Al Tayer was 
attending. 
 
8. (U) The UAE business community was selectively informed 
about specific content of previous U.S. FTA agreements in the 
region, and asked many detailed questions, some out of 
context, about  previous FTAs that they thought could prove 
problematic to local industries.  They also made the 
observation that a good agreement is better than a fast 
agreement, and expressed concern about the pace of the 
process.  Major themes were concerns about an FTA affecting 
trade with Saudi Arabia and Iran, the national security 
implications of lopsided UAE demographics (over 80 percent of 
the population is made up of foreign nationals), the ability 
of small and medium companies to access the U.S. market and 
remain competitive in the UAE (particularly in the financial 
services sector), and national treatment for investors 
(particularly regarding market access and government 
procurement).  AUSTR Novelli addressed all of their concerns, 
but notable in its absence was the failure by the business 
community to raise the Agency issue ) their real source of 
concern. 
 
 
US BUSINESS COMUNITY ENTHUSIASTIC 
--------------------------------- 
 
9. (U) The American business communities in the UAE expressed 
optimism over the potential FTA, and reiterated many of their 
previously expressed complaints about the UAE, particularly 
in regard to agencies requirements.  They also noted the need 
for a legal framework to protect U.S. companies as part of 
the FTA. Several company representatives expressed skepticism 
that the UAE would ever do away with Agency stipulations and 
the 51/49 percent ownership requirements of the Companies Law. 
 
10. (U) This cable has been cleared by AUSTR Novelli. 
SISON