US embassy cable - 05ABUDHABI3436

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 003436 
 
SIPDIS 
 
STATE FOR EB/TPP/BTA AND EB/IFD/OIA 
STATE FOR NEA/ARPI 
STATE PASS USTR FOR DOUG BELL 
 
E.O. 12958: DECL: 08/05/2015 
TAGS: ETRD, ECON, EFIN, TC 
SUBJECT: UAE MAKING PROGRESS ON FTA ISSUS OVER SUMMER 
 
 
Classified By: Ambassador Michele J. Sison for reasons 1.4 
(b & d). 
 
1. (C) Summary: The UAEG continues to make progress on FTA 
issues over the summer months.  The UAE Rules of Origin 
Committee announced a set of conditions that companies would 
need to comply with in order to have a good classified as 
"made in the UAE."  According to MinFin's Saeed Al-Rukn, 
these rules were designed with the U.S.-UAE FTA negotiations 
in mind.  Al-Rukn explained that the rules are not yet 
finalized and he would have more clarity in September.  Abu 
Dhabi Investment Authority representatives told econchief 
that they were still concerned about several issues including 
federal-emirate jurisdiction, security of assets, taxation, 
and investor state dispute settlement.  They remained 
confident, however, that these issues could be worked out if 
experts on both sides met to discuss them.  End Summary. 
 
Sheikh Abdullah Hears our Concerns 
---------------------------------- 
 
2. (C) During a July 24 meeting with Minister of Information, 
Sheikh Abdullah bin Zayed Al-Nahyan (AbZ), Ambassador briefly 
discussed the ongoing FTA negotiations and highlighted 
several issues for his attention.   AbZ has been one of the 
senior UAEG leaders active on FTA issues.   Ambassador 
stressed that the UAEG's interest in a "movement of persons" 
or visa chapter in the FTA was unacceptable to the USG. 
Sheikh Abdullah seemed to accept this.  On the issue of 
rights of association and labor unions, and on the issue of 
Federal-Emirate jurisdictional breakdowns, Sheikh Abdullah 
didn't comment, but took the information on board. 
 
 
"Made in UAE" 40% Local Content Needed 
-------------------------------------- 
 
3. (U) On July 24, the UAE press reported that the UAE Rules 
of Origin Committee had decided (pursuant to various FTA 
negotiations) on a set of conditions for classifying a 
product as a local product.  The good needed to be locally 
obtained, or for goods made by imported materials, the 
product needed to be substantially transformed (i.e., there 
would be a change in the harmonized tariff code), and the 
value added in the UAE needed to be at least 40 percent.  The 
press also reported that the Rules of Origin Committee had 
agreed on standardizing the forms needed to certify the local 
content rule. 
 
4. (SBU) Econchief called Saeed Al-Rukn, Deputy Director of 
the Department of Industrial Development at the Ministry of 
Finance and Industry on July 24 to discuss the newspaper 
reports.  Al-Rukn confirmed that the committee had based its 
decision on the U.S. FTA requirements, and confirmed that it 
would serve as the UAEG's model for future FTA negotiations. 
He stressed that the committee had consulted with UAE 
industry before making its decision and that the UAEG was 
trying to be fair to its "clients" (i.e., UAE industry) and 
with its negotiating partners.  On August 2, Al-Rukn provided 
econchief with further details on the decision.  He explained 
that the UAE wanted/needed to include indirect costs in the 
calculation of the 40 % UAE value added, which he understood 
could be problematic for the U.S. He said, however, that he 
thought that the U.S. would be interested in an FTA that was 
flexible enough to meet the needs of both parties.  Al-Rukn 
concluded by noting that the UAEG was still meeting with the 
relevant actors on the proposed rules and that he hoped to 
have more clarity by early September as his colleagues 
returned from vacation. 
 
5. (SBU) Al-Rukn also said that the UAE Ministry of Finance 
had gotten approval from Dr. Khirbash to create a software 
application and process for companies to register and submit 
their applications for rules of origin paperwork.  He 
explained that this program would help the UAEG to track 
whether goods were substantially modified in the UAE and met 
the 40% value added requirement. 
 
Lost in Translation 
------------------- 
 
6. (C) Al-Rukn also highlighted some problems the UAE had had 
in translating the USG's draft text.  He said that Ali 
Al-Baloushi, the head of the UAE's Copyright Department, had 
asked him to review part of a chapter dealing with licensing 
companies that produce optical media (CDs etc.).  Al-Rukn 
said that the English language text was unobjectionable and 
provided that companies could not be established to make 
compact disks without receiving an appropriate license.  The 
Arabic translation, however "prohibited" the UAEG from 
granting a company a license to make compact disks.  Al-Rukn 
said that he had urged Al-Baloushi to show the texts to his 
legal advisor for comment.  He noted that, in some cases, the 
UAEG's translators were not specialists and that they 
sometimes translated the text "word for word" rather than 
translating its meaning.  (Note: This is the first specific 
example of a mis-translation in the Arabic text of the FTA 
that we have heard of.  Negotiators should be aware, however, 
that communication difficulties can and will slow 
negotiations as the UAEG negotiators try to ensure that they 
fully understand the meaning of the negotiating documents.) 
 
Emirate-Federal Jurisdiction still a Concern 
-------------------------------------------- 
7. (C) On July 26, two senior Abu Dhabi Investment Authority 
advisors (strictly protect) discussed progress on the 
investment and financial services chapters of the FTA with 
econchief.  Both noted that ADIA remained concerned about 
Federal-Emirate jurisdictional issues, security of ADIA 
assets in the U.S., tax issues, and the investor-state 
dispute mechanism.  (Comment: ADIA is the investment arm -- 
and checkbook -- for the Emirate of Abu Dhabi.  As the 
Emirate of Abu Dhabi largely funds the UAE federal 
government, ADIA is -- ultimately -- a source of funds for 
the UAEG.  ADIA operates under a very restrictive need to 
know definition of security and "need to know" does not 
generally include the UAE federal government. End Comment.) 
The senior legal advisor explained that ADIA had had some 
excellent initial meetings in Washington during the May round 
to discuss several of these issues.  He said that he had 
looked forward to going to Washington to continue those 
discussions, but that the Ministry of Finance had rejected 
that idea.  (Note:  According to MinFin A/US Khalid 
A-Bustani, the UAEG did not want a sub group negotiating, 
without the entire group present.)   Due to the complexity of 
the issues (and to ADIA's general penchant for secrecy -- 
even from UAEG officials) he said ADIA was not prepared to 
discuss them in any detail over a videoconference.  The legal 
advisor reiterated that he thought the issues could be 
resolved if a key group of people from each side discussed 
them in detail. 
 
8. (C)  The senior legal advisor explained that he thought 
the Ministry of Finance would present an updated (ADIA 
drafted) side letter on the issue of Federal-Emirate 
jurisdiction and that this letter reflected the UAEG's best 
understanding of how this issue was handled in past GATT/WTO 
discussions.  (Comment:  When the UAEG presents this side 
letter, USTR might want to suggest that a group of experts 
visit the U.S. to discuss specific concerns with all of the 
relevant USG agencies.  The group could then report back to 
the negotiating teams, so this would not be a "negotiation.") 
SISON