US embassy cable - 03SANAA1202

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 001202 
 
SIPDIS 
 
STATE FOR EB, NEA/NGA AND EB/CBA, 
COMMERCE FOR ITA/MAC/ONE (CHERIE LOUSTAUNAU AND CARL OBERG) 
STATE PLEASE PASS TO USTR FOR DOUG BELL 
 
E.O. 12958: DECL: 05/26/2013 
TAGS: ETRD, ECON, EINV, YM, ECON/COM 
SUBJECT: MIDDLE EAST TRADE INITIATIVE: YEMEN 
 
REF: A) SECSTATE 135263 B) TUNIS 1273 
 
Classified By: By DCM Alan G. Misenheimer for 1.5 (b.) and (d.) 
 
 1. (C) Summary: The ROYG will respond very positively to the 
Middle East Trade Initiative.  Yemen should accede to the 
World Trade Organization in five years and that process 
should help reinvigorate efforts to conclude a Bilateral 
Investment Treaty.  Sub regional FTAs could have wide 
benefits for Yemen; GCC membership for example is a top 
economic policy objective for Yemen  To qualify, Yemen will 
need technical assistance in WTO accession, privatization, 
regulatory enforcement and public relations. End Summary. 
 
 
2. (C) The Middle East Trade Initiative will be welcomed by 
the ROYG as an excellent avenue to develop business 
infrastructure and investment climate as a means to raise 
Yemen's standard of living and institutionalize economic 
reform. Several contacts in business and government sectors 
are seeking USG assistance in meeting WTO accession 
requirements and expansion of USG investment in Yemen. The 
Middle East Trade Initiative will also compliment USAID and 
MEPI assistance projects. 
 
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WTO Accession: Four to Five Years 
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3. (C) In October 2002, Yemen submitted its Memorandum of 
Foreign Trade Regime to the World Trade Organization. 
Accession for Yemen is still four to five years away; Yemen 
is currently working hard to answer questions from the 
European Union, the United States and Australia.  The EU has 
pledged 7 million Euros to help Yemen accede, and the Dutch 
and World Bank plan on holding Yemen's Integrated Framework 
Conference in June. 
 
4. (C) We believe this initiative will also reinvigorate our 
efforts to conclude a bilateral Investment Treaty that we 
have been working on with the Ministry of Finance for the 
past year.  Progress has stalled as Yemen works on meeting 
the USG's core text requirements. 
 
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Subregional FTAs: Bridging the Gap 
between Yemen and other Gulf Countries 
-------------------------------------- 
 
5. (C) Subregional FTAs would be beneficial for Yemen, 
especially if Yemen gains admission to the Gulf Cooperation 
Council. However, we note Embassy Tunis' (Reftel B) concerns 
that intra-region politics may hamper the development of 
subregional free trade agreements.  Our  contacts have told 
us that Gulf countries compete with each other in similar 
economic sectors, such as oil and transshipment business, the 
two core aspects of the Yemeni trade economy.  To counteract 
such competition, we suggest that the Middle East Trade 
Initiative encourage the development of complimentary sectors 
in subregional countries. 
 
 
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Investment Climate: Micro-Enterprise 
and Export Industry Development 
------------------------------------- 
 
6. (C)  Post is already engaged in developing 
Micro-Enterprise projects and expanding business related 
education as part of our MEPI strategy. Expansion of export 
tied financing programs could help USG firms do business in 
Yemen. Yemenia Airlines representatives told Pol/econoff that 
they prefer to buy Boeing planes, however loan terms offered 
by Airbus were too good to pass up and therefore they placed 
their last order with Airbus. 
 
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Technical Assistance: WTO Accession, 
Privatization, and Public Relations 
----------------------------------- 
 
 
7. (C)  The following are possible areas for technical 
assistance: 
 
-- WTO Accession (A): Fortifying Yemen's copyright protection 
enforcement is one area that where USG technical assistance 
would aid Yemen.  Post does not assess intellectual copyright 
issues to be a major problem for Yemen, but developing a 
sound legal structure would greatly assist the accession 
process. Any help that we can provide to ensure that future 
IPR problems do not occur will encourage both trade and 
investment in Yemen. 
-- WTO Accession (B): Export industries should be made aware 
of the benefits of WTO status: a technical assistance program 
for exporters to meet quality control  and world trade 
organization standards for their goods would provide 
significant future dividends for domestic industry. 
 
-- Privatization: Assistance programs to encourage ROYG 
efforts to privatize the banking industry and national gas 
companies would help diversify the economy. 
-- Public Relations: Our contacts at the General Investment 
Authority and at the Ministry of International Cooperation 
are eager for Public Relations assistance that would promote 
Yemen's tourism, industry and trade. 
 
 
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Comment: Foreign Direct Investment a Key to Yemen's Future 
--------------------------------------------- ------------- 
 
8. (C) Comment: Foreign direct investment is an imperative 
for Yemen, which could eventually lose as much as one-third 
of its GDP as oil incomes decline in the next twenty years 
and its twenty plus million population is increasing at a 
rate of 3.7% a year. Free trade agreements are crucial to 
encouraging direct investment, and will be a valuable asset 
in our encouragement and assistance to help Yemen diversify 
its economy. 
MISENHEIMER