US embassy cable - 05BAGHDAD3066

UNCLAS SECTION 01 OF 02 BAGHDAD 003066 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/I, EB/EX  WAYNE, D STAFF 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EAGR, SOCI, IZ, Reconstruction, ECON Development 
SUBJECT: JCRED AMMAN: Trade Session Discussion focuses on 
PDS, GSP, WTO Accession 
 
 
SENSITIVE BUT UNCLASSIFIED  USG DIST ONLY  NOT FOR 
INTERNET DISTRIBUTION 
 
1. (SBU) Summary:  The inaugural U.S.-Iraqi Joint Committee 
on Reconstruction and Economic Development (JCRED) meeting 
held in Amman, Jordan on July 10-11, 2005 saw detailed 
discussions of developments in Iraq's trade and agriculture 
sectors.  Delegates discussed the imminent July submission 
of Iraq's initial World Trade Organization accession 
document, means by which Iraq can take advantage of 
recently awarded Generalized System of Preferences (GSP) 
privileges for dates and how to begin to reform the Public 
ic 
Distribution (food ration) System (PDS) administered by the 
Ministry of Trade and the largest subsidy in the Iraqi 
budget for 2005.  The Ministry of Finance announced plans 
to double the current 5 percent "Reconstruction Levy" to 10 
percent and recast it as a tariff as early as 2006.  The 
Ministers of Finance and Trade expressed their desire to 
see market conditions in Iraq improve so that the 
government could scale back its role in food subsidies. 
End Summary. 
 
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The Public Distribution (Food Ration) System 
-------------------------------------------- 
 
2. (SBU) Finance Minister Allawi opened the JCRED Session 
on Trade by acknowledging U.S. encouragement that the Iraqi 
Transitional Government (ITG) initiate reform of the PDS 
system.  According to Allawi, the ITG is exploring ways to 
reduce the scope of the program, but monetization, a reform 
suggested under the previous government is not the current 
preferred method.  Instead, the ITG is exploring the 
gradual reduction of foodstuffs distributed by the system. 
Minister Allawi asked Minister of Trade Abdul Bassit Kareem 
to elaborate on the current status of the PDS.  Minister 
Kareem reported that upon assuming his post as Minister he 
found the PDS short of supplies, with some food items 
undistributed for three months.  Kareem stated his belief 
that the majority of Iraq's population remains dependent in 
some form on the PDS system.  He stressed that any reform 
initiatives had to be initiated by the Iraqi Cabinet and 
legislature (Transitional National Assembly) but that 
market conditions need to improve before the Iraqi private 
sector can step in to take over functions that PDS now 
performs. 
 
3. (SBU) In order to achieve private sector growth Kareem 
highlighted the Ministry's efforts to create an investment 
environment that is "clearly articulated" with 
"protections" for investors where administrative procedures 
are rationalized and technical barriers to trade are 
removed.  As proof of progress in this area Kareem pointed 
to changes in Iraqi investment laws granting local 
treatment for all international investments in Iraq.  In 
addition, a Trade Center at the Ministry of Trade provides 
information and a monthly magazine that highlights 
investment opportunities in Iraq.  Minister Kareem also 
spoke of the creation of an Investment Promotion Board that 
will be responsible for investment issues in Iraq.  He 
stressed that while the Ministry of Trade is spearheading 
these efforts, security still precludes many potential 
investors of taking advantage of these services, and that 
he stated, is not the responsibility of the Ministry of 
Trade. 
 
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Iraq's WTO Accession and use of GSP preferences 
--------------------------------------------- -- 
 
4. (SBU) Minister Kareem went on to discuss Iraq's 
preparation of the Memorandum of Free Trade Regime (MFTR) 
the initial document to begin its WTO accession process. 
Kareem reported the creation of an interministerial 
committee that worked for 8 months to prepare a document 
that is now with the Minister for final review.  He assured 
delegates that the MFTR would be submitted to the WTO's 
offices in Geneva by the end of July 2005.  He reported 
excellent cooperation between various ITG entities 
including the Central Bank of Iraq (CBI), Trade Bank of 
Iraq (TBI), Ministries, private sector and consultants in 
the preparation of the document. 
 
5. (SBU) In opening the session's discussion of the GSP, 
Assistant USTR, Ambassador Ashley Wills, praised Iraq's 
progress on the MFTR, encouraged its timely submission, 
offered USG help in identifying the various sources of 
accession preparation assistance and urged the Iraqi side 
to move quickly to chose a Working Party Chairman for their 
accession process.  Wills noted that a WP Chair will best 
be able to aggressively push an Iraqi reform-minded agenda 
in the WTO.  A question that Iraq will have to answer early 
in its accession process will be the level of its tariffs. 
Finance Minister Allawi informed delegates that Iraq 
intends to double the current "Reconstruction Levy" to 10 
percent and recast it as a tariff as early as 2006.  Allawi 
stated that this is intended as a revenue raising measure. 
Wills also encouraged the Iraqi side to move quickly in 
appointing an Ambassador to the WTO to shepherd the 
accession process along with the WP Chair. 
 
6. (SBU) Ambassador Wills encouraged the Iraqi side to take 
advantage of newly added GSP privileges for dates, one of 
the country's major export crops.  Agricultural Counselor 
James Smith added that Embassy Baghdad had prepared a short 
paper outlining the various steps Iraqi dates would need to 
go through in order to enter the U.S. market.  He spoke of 
USDA's possible assistance with food safety issues as well 
as market analysis and encouraged the Iraqi side to work 
with Embassy Baghdad to "walk through the process". 
 
7. (SBU) Deputy Secretary Zoellick added that both sides 
were eager to make export of dates under the GSP process 
work so that Iraq can offer a concrete example of 
successful exports.  USDA would be urged to make addressing 
the GSP issues a priority.  He asked that the Iraqi sie 
provide contact information to Mr. Smith of the appropriate 
officials with which to continue to pursue the date export 
issue and noted that this would be a good example for Iraqi 
producers and would lead to other exports.  When Minister 
Allawi pointed out that only a small percentage of Iraqi 
dates might be of sufficient quality for U.S. export, the 
Deputy Secretary stated his strong conviction that with 
U.S. support Iraq will be able to take advantage of GSP 
opportunities in the very near future. 
 
8. (SBU) Iraqi Minister of Agriculture, Dr. Ali Al-Behadli 
commented that the Iraqi date crop was predicted to be of 
good quality this year and discussed the Ministry's efforts 
in developing a new date palm pest-control plan that will 
possibly utilize gamma radiation for pest eradication 
rather than other chemical methods that preclude export to 
the U.S. and other nations.  The Deputy Secretary stated 
that the agricultural sector is a key engine for future 
Iraqi economic growth and encouraged the ITG to work 
closely with the Embassy on agricultural issues. 
 
9. (SBU) Deputy Secretary Zoellick urged the Iraqi side to 
begin to work both multilateral and bilateral negotiations 
in their WTO accession process.  He stressed that good 
leadership, via a strong Working Party Chair and Ambassador 
to the WTO will allow Iraq to defend their trade agenda in 
Geneva.  At the same time he stressed, Iraq can work 
diligently to bring domestic legislation into WTO 
conformity. 
 
KHALILZAD