This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 THE HAGUE 002675 
 
SIPDIS 
 
EUR/UBI, EB FOR BILL GRANT, NEA/NGA FOR MMCCOWAN 
 
E.O. 12958: N/A 
TAGS: EAID IZ NL PREL
SUBJECT: DUTCH DELEGATION TO MADRID BUSINESS CONFERENCE AND 
RESULTS OF FACT-FINDING MISSION 
 
REF: A. THE HAGUE 02142 
 
     ¶B. STATE 287995 
 
¶1.     (SBU) Summary.  The following Dutch companies will 
attend the Iraq business forum in Madrid:  Shell, Philips, 
ABN Amro, Nedeco, and Friesland Coberco.  Dutch businesses, 
with the financial and moral support of the government, are 
positioning themselves for entree into Iraq "as soon as the 
security situation improves."  Industry and government have 
organized themselves under an umbrella group called "Task 
Force Iraq" which has staged two conferences in the 
Netherlands and launched a fact-finding mission to the 
region, visiting Turkey, Jordan, Kuwait, and Dubai.  Future 
plans include a proper trade mission to Baghdad, the 
establishment of Dutch-Iraqi Commercial Center in Baghdad, 
and a third conference in Jordan in January 2004.  A report 
from the fact-finding mission finds that it is too early to 
invest in Iraq because of the security situation, lack of 
political continuity, and lack of finance.  The report also 
criticizes the bidding process on U.S.-government funded 
contracts, saying it lacks transparency and is rigged in 
favor of U.S. companies.  Dutch industry is encouraging the 
MFA to fund private sector support programs in Iraq.  The 
Ministry of Economic Affairs' EUR 3 million "Iraq Facility" 
has been put on indefinite hold.  Dutch business has made it 
clear it wants to see the Foreign Ministry make pledges to 
Iraq reconstruction.  End Summary. 
 
Task Force Iraq 
--------------- 
 
¶2.     (U) The Dutch Ministry of Economic Affairs has 
informed post that at the October 23 Madrid Conference on the 
Role of the Private Sector in Iraq, Dutch industry will be 
represented by Shell (energy), Philips (electronics and 
medical), ABN Amro (financial services), Nedeco 
(engineering/construction), and Friesland Coberco (dairy). 
Each company will report back to its respective sector after 
the conference.  These companies have been integrally 
involved in "Task Force Iraq," a joint venture by the 
Ministry of Economic Affairs, the Chamber of Commerce, and 
the Dutch Trade Promotion Council (NCH) On September 17, Task 
Force Iraq held its second symposium for businesses 
interested in Iraq.  There were 250 attendees on hand at the 
half-day event, although the Task Force claims a total of 700 
members.  A significant portion of the members are Iraqis 
residing in the Netherlands.  This is the second event they 
have held -- the first was in Rotterdam in May.  The Dutch 
Trade Promotion Council will co-host a conference on 
"Rebuilding Iraq" in Amman January 10-13 along with American 
partner The Kallman Group, L.L.C.  The Task Force is asking 
Dutch businesses to sign up as sponsors of a future 
Dutch-Iraqi Commercial Center in Baghdad which will provide 
business consultation services to prospective Dutch investors. 
 
What Business Requests of the Government 
---------------------------------------- 
 
¶3.     (SBU) The Ministry of Economic Affairs' had set aside 
EUR 3 million for the creation of an "Iraq Facility" 
dedicated to funding opportunities for Dutch companies to get 
a foothold in Iraq reconstruction (ref A).  This money is 
designed to fund needs assessments and grant awards to Dutch 
companies in specific sectors.  However, the initiative has 
been placed on hold until further notice due to security 
conditions.  The business sector has asked for the Facility 
to be activated as soon as possible and for the MEA to 
proceed with a trade mission as soon as the security 
situation allows it.  The business sector has also expressed 
frustration at the MFA's reluctance to make an aid pledge to 
Iraq.  (Note:  new indications are that the Dutch may make a 
small pledge at the October 23 conference.  End Note.)  The 
Task Force recommends the MFA begin a bilateral "thematic" 
program in Iraq focused on private sector development and 
that it further support opportunities for Dutch NGOs in Iraq. 
 In addition the Task Force requests stronger representation 
in Iraq including a commercial support office, a Dutch 
delegate in the CPA (which has so far been resisted by the 
MFA), and a fully-staffed embassy. 
 
Fact-Finding Mission to the Region 
---------------------------------- 
 
¶4.     (U) In September, a consortium of Dutch government and 
industry went on a fact-finding mission to Turkey, Jordan, 
Kuwait and Dubai to seek out partners to sow future business 
seeds in Iraq and to get an overview of the present and 
future challenges.  The 25-person trip was led by Ministry of 
Economic Affairs Director General for Foreign Economic 
Affairs Dirk Bruinsma and sponsored by the Dutch Trade 
Promotion Council (NCH).  Bruinsma broke away from the group 
at one stage, heading briefly into Baghdad to meet with UN 
officials, Ambassador Bremer, and entrepreneurs. 
 
¶5.     (SBU) The private sector-led Dutch Trade Promotion 
Council wrote a report at the end of the trip summarizing 
their findings.  The report states that there are numerous 
short-term business opportunities available, linked to Iraq's 
desperate need to import most consumables at this time, but 
it is still too early to invest for the long-term.  The basic 
conditions that are necessary to business are not in place 
yet.  These are security, trustworthy partners, continuity of 
government leadership, financing, and legal protections.  The 
report criticizes the degree of transparency in the 
subcontracting process for U.S.-funded projects.  In 
addition, it notes that there is criticism outside the U.S. 
that non-U.S. companies have little chance in the bidding 
process.  "One can hope that the process will be improved and 
that funding from the Development Fund for Iraq will play a 
larger role."  Investing in any newly-privatized companies 
would be risky if there is a lack of legal protection.  Even 
if privatized, industries will remain heavily regulated and 
subsidized.  Business-to-business contacts offer the best 
potential, and Dutch companies are looked at favorably by 
Iraqis.  It is important to work with local Iraqis but hard 
to find trustworthy partners; there is an abundance of 
middlemen.  The local business sector is aware of these 
handicaps and is beginning to organize itself in response. 
Iraqi Business Councils outside Iraq offer some hope as does 
the CPA's "Business Support Center."  It is important that in 
a future Iraq, a handful of families is not permitted to 
control the economic means of the country. 
 
¶6.     (SBU) The report identifies three major obstacles: 
political risk, security risk, and a lack of finance. 
 
--  Political Risk -- Iraqi businessmen in and outside of 
Iraq think it is too early for large investments due to 
political risk.  It is essential to have legitimate 
government but the interim authority does not have this 
legitimacy. 
 
--  Security Risk -- According to people the mission 
encountered, the explosive security situation is linked to 
the United States' failure to properly prepare for the peace. 
 The combination of 140,000 released prisoners and the 
disbanding of the army and police was a fatal combination. 
The thousands of newly unemployed creates an ideal reservoir 
for terrorist and criminal organizations.  The CPA is, 
however, working hard to make the streets more secure. 
Developments over the next few months will be crucial.  Few 
Dutch companies are willing to take these risks.  The Foreign 
Ministry maintains a travel advisory and the Dutch embassy is 
down to two people as a result of the UN HQ bombing. 
 
--  Lack of Finance -- The country faces a lack of 
international donor support and crippling debt levels.  There 
is a need for medium-term finance.  While the CPA is working 
on new investment-friendly laws, it remains to be seen 
whether a future Iraqi government will stay on course or turn 
back to the old, restrictive system. 
 
¶7.     (SBU) All the countries the mission visited presented 
themselves as the "springboard" to Iraq.  The report calls 
Turkey the gateway to Northern Iraq and says Turks are keen 
to partner with Dutch firms.  Turkish construction companies 
are already active in Iraq and seem willing to take the 
associated risks.  In Jordan, the mission was impressed by 
the large number of Iraqis with strong ties to businesses in 
Iraq.  Jordan is described as having vibrant commercial links 
with Baghdad and the advantage of a free trade agreement with 
the U.S.  Kuwait has the advantage of proximity to Basra and 
strong companies, but Kuwaitis do not have a good reputation 
in Iraq, according to the trade mission.  Dubai is also an 
excellent platform from which to do business in Iraq, but is 
rather far.  All four countries have developed free trade 
zones oriented toward trade with Iraq.  The business sectors 
in each country see the regime change in Baghdad as positive 
for business opportunities. 
SOBEL