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

191433Z Feb 06

C O N F I D E N T I A L SECTION 01 OF 04 MANAMA 000238 
 
SIPDIS 
 
SIPDIS 
 
COMMERCE FOR SECRETARY GUTIERREZ 
ALSO FOR ITA/MAC/AMESA - T HOFFMAN 
ALSO FOR FCS/ANESA - B ORR 
STATE FOR NEA/ARPI, EB 
USTR FOR J BUNTIN 
 
E.O. 12958: DECL: 02/14/2016 
TAGS: PREL ECON ETRD BEXP OVIP BA BILAT ECTRD OFFICIALS
SUBJECT: SCENESETTER FOR COMMERCE SECRETARY GUTIERREZ'S 
FEBRUARY 26-28 VISIT TO BAHRAIN 
 
 
Classified by Ambassador William T. Monroe for reasons 1.4 
(b) and (d). 
 
------------------------------- 
FTA Implementation and Outreach 
------------------------------- 
 
¶1.  (C) Mr. Secretary, we warmly welcome your February 26-28 
visit to Bahrain.  Interest in doing business with the United 
States is at a peak with recent ratification by both 
countries' legislatures of the U.S.-Bahrain Free Trade 
Agreement (FTA).  We are now working closely with the senior 
Bahraini leadership on finalizing the last pieces of 
implementing legislation - all related to protection of 
intellectual property rights - so that the agreement can 
enter into force in the very near future. 
 
¶2.  (C) Our greatest challenge related to the FTA is the 
deficit in understanding about what the agreement means for 
Bahraini business people.  Some members of the private sector 
believe that bringing the benefits of the FTA to Bahrain is a 
government responsibility; others think American trade and 
investment will naturally gravitate to Bahrain without any 
action on their part.  Your visit represents a perfect 
opportunity to highlight for Bahrainis and others in the 
region the potential benefits of a free trade agreement with 
the United States, the U.S. vision of a Middle East Free 
Trade Area by 2013, and to spur Bahraini business people to 
seek out opportunities to enhance their trade and investment 
relations with American companies. 
 
------------------------- 
Suggested Points to Raise 
------------------------- 
 
¶3.  (C) We have requested meetings for you with Crown Prince 
Shaikh Salman bin Hamad Al Khalifa, Minister of Industry and 
Commerce Dr. Hassan Fakhro, Minister of Finance Shaikh Ahmed 
bin Mohammed Al Khalifa, and Economic Development Board CEO 
Shaikh Mohammed bin Issa Al Khalifa.  In your meetings, we 
suggest you raise the following points: 
 
-- FTA Implementation:  The FTA cannot be implemented, and 
business people from both countries cannot benefit from it, 
until Bahrain passes all required IPR legislation.  Members 
of Congress are asking questions about the need to rush FTAs 
through Congress when our partner countries take so long to 
implement the agreements.  We urge Bahrain to finalize all 
outstanding issues as soon as possible, shooting for a July 1 
implementation date at the latest. 
 
-- Enhancing Trade and Investment Relations:  We understand 
that Bahraini business people are anxious to benefit from the 
FTA and are asking questions about how they can find 
commercial opportunities under the agreement.  We proposed 
this regional conference with exactly this question in mind 
and hope it will kick off the trade promotion component of 
the FTA.  We urge the Bahraini government and the FTA 
Implementation Committee to continue to spread awareness 
about the agreement.  It provides a framework for expanding 
trade and investment relations between our two countries, but 
it is up to the business people themselves to negotiate the 
deals and conclude the business that will bring the benefits 
of the agreement to Bahrain. 
 
-- Trade Missions:  We are pleased that the EDB and AmCham 
Bahrain conducted a trade mission to Washington and New York 
in December.  Ambassador Balooshi's travels to key cities and 
markets in the United States to promote business with Bahrain 
is an important activity.  The Bahraini government and the 
FTA Implementation Committee should plan additional 
activities in the United States, such as trade missions and 
road shows.  Using our network of Commercial Service offices 
in the United States and around the world and our 
relationships with business organizations, we are promoting 
the agreement and can assist you in doing so.  Outreach is 
the key to realizing the benefits. 
 
------------------------------- 
Points the Bahrainis Will Raise 
------------------------------- 
 
¶4.  (C) Your Bahraini interlocutors will likely raise the 
following issues: 
-- U.S. Promotion of FTA:  Realizing that Bahrain is a small 
country with little name recognition in the United States, 
the Bahraini officials will likely ask that the Department 
employ its resources and linkages to promote the FTA and 
doing business in Bahrain. 
 
-- CP Visit in April:  Crown Prince Salman is currently 
planning a visit to the U.S. in April that will include a 
focus on the FTA.  He and your other interlocutors may ask 
for your advice and support in making the visit a success, 
including ways to reach out to business communities in key 
U.S. markets. 
 
-- Bahrain as a Regional Center:  Bahrain seeks to market 
itself as a regional center for foreign companies, with a 
focus on the services sector.  It already has a strong 
regional reputation for its financial sector and for the 
Bahrain Monetary Agency's regulation of the industry. 
Bahrain also wants to expand into tourism, education, health, 
and information technology.  The officials may ask your views 
and advice on how to build up the country as a regional 
center. 
 
------------- 
Issues Briefs 
------------- 
 
Economy 
------- 
 
¶5.  (SBU) Bahrain is widely considered to be one of the most 
open countries in the region and generally follows an 
open-market philosophy.  It has been able to make significant 
progress in recent years in its ongoing process of economic 
liberalization, diversification of national income, and 
openness to investment policies.  Bahrain has already amended 
existing legislation and promoted new laws aimed at 
facilitating and encouraging foreign investment, and senior 
government officials believe it is imperative to continue 
working toward economic diversification and increase the 
volume of investment in services, tourism, industry, and the 
financial sector.  Officials make frequent public statements 
citing the importance of foreign direct investment, 
bolstering the private sector's role in the economy, 
lessening the burden on government, and eventually decreasing 
government subsidies. 
 
¶6.  (SBU) The 2006 Heritage Foundation's "Index of Economic 
Freedom" ranked Bahrain 25th, marking a decline from the 
previous year's ranking of 20th.  The Index rated Bahrain as 
"mostly free," and the Kingdom was recognized as the freest 
among the Arab economies.  The United Nations Conference on 
Trade and Development's World Investment Report 2005 ranked 
Bahrain as the highest and best among all Arab countries for 
its FDI performance, reporting an FDI influx of $865 million 
in 2004, an increase of over 40 percent from 2003, and third 
among all Arab countries for its potential FDI performance. 
The UN Economic and Social Commission for Western Asia 
estimated Bahrain's 2005 real economic growth at seven 
percent, the highest in the Arab world. 
 
¶7.  (SBU) Crown Prince Salman takes the lead on the Kingdom's 
economic reform initiatives.  Following ministerial changes 
in January 2005, King Hamad issued Royal Decree No. 31 for 
2005 delegating the national economic and investment 
portfolio to the Economic Development Board, which had 
formerly served as an economic think tank.  Under the 
chairmanship of the Crown Prince, the EDB was entrusted with 
the implementation and execution of a three-tiered reform 
initiative, focusing on labor, economic and education reform. 
 The EDB's main strategic functions are to promote investment 
in key economic sectors, support and encourage foreign 
investment, attract foreign companies to establish a presence 
in Bahrain, support and develop local entrepreneurial skills, 
simplify and eliminate investment obstacles, and secure 
Bahrain's economic leadership and competitiveness in the 
region. 
 
Status of FTA 
------------- 
 
¶8.  (SBU) The President signed the U.S.-Bahrain FTA into law 
on January 11 of this year following ratification by Congress 
in late 2005.  The Bahraini parliament ratified and the King 
approved the agreement in July 2005.  Congressional 
requirements for U.S. ratification generated some blowback in 
Bahrain, most notably when Bahrain formally closed its Israel 
boycott office in connection with ratification.  Bahrain also 
committed to seek passage of additional labor legislation. 
The agreement will enter into force when the Bahraini 
parliament approves a few outstanding IPR laws (copyright, 
international treaties) and the government implements 
regulations covering several other IPR areas.  Bahrain's 
parliament voted strongly in favor of ratification of the FTA 
but quick action on the IPR legislation is not guaranteed. 
We were disappointed the GOB did not complete all the 
implementing legislation in time for a January 1 entry into 
force.  We are now pushing for the FTA to enter into force on 
April 1, but that date is slipping and July 1 appears to be 
more realistic.  We must advocate rapid movement on any 
outstanding issues holding up full implementation of the 
agreement. 
 
Political Environment 
--------------------- 
 
¶9.  (C) King Hamad launched a political and economic reform 
program when he ascended to the throne in 1999 following the 
death of his father, Emir Shaikh Issa.  The King held a 
referendum on a National Action Charter in 2001 and issued a 
new constitution in early 2002 that called for municipal and 
parliamentary elections later that year.  Because of 
discrepancies between the Charter and the constitution, 
leading Shia opposition group Al Wifaq and others led a 
boycott of the parliamentary elections, claiming both the 
constitution and parliament are illegitimate.  That said, 
some 53 percent of eligible voters participated in the 2002 
elections for the lower house of parliament, the Council of 
Representatives (COR), which were judged to be mostly free 
and fair.  The COR is increasingly growing into its role as a 
legislative, monitoring, and accountability body and had a 
real influence on the biannual budget issued by the 
government in mid-2005.  The country will again hold both 
municipal and parliamentary elections, in May and October 
2006 respectively.  There are strong indications that the 
boycotters will decide to participate this time, providing a 
major boost for the reform program and the legitimacy of the 
institution of parliament. 
 
¶10.  (C) As Al Wifaq edges closer to participation, a 
hardline breakaway Shia group, known as the Haq Movement, has 
adopted more confrontational tactics in dealing with the 
government.  There have been repeated clashes between 
security forces and Haq Movement supporters (never numbering 
more than a few hundred) since the end of November 2005.  The 
atmosphere is likely to remain charged as Al Wifaq and Haq 
battle for the support of the Shia community, which 
represents some 70 percent of Bahrain's citizens, and as the 
October elections approach.  Many officials and business 
people have complained that the tension, protests, and 
clashes are hurting Bahrain's commercial climate. 
 
U.S. Corporate Presence 
----------------------- 
 
¶11.  (U) Over 200 American companies have a presence in 
Bahrain, not including agencies.  All of the big names in 
consumer and industrial products are present, and American 
franchises blanket the country.  Many financial institutions, 
including American Express and Citibank, have established 
their regional offices in Bahrain, and companies such as 
Bechtel, Parsons, and KBR pursue infrastructure and 
development projects.  FedEx has its regional hub in Bahrain. 
 Two large joint ventures are Kimberly-Clark Bahrain and 
Shaw-Nass, a manufacturer of complex pipe systems for the 
petroleum industry.  The local AmCham received formal 
recognition from the U.S. Chamber of Commerce in early 2005 
and recently organized and led a trade mission to Washington 
and New York.  The Embassy works closely with the AmCham to 
develop it as an institution.  Total trade between the U.S. 
and Bahrain (in $ millions) was: 
 
 
Year   US Exp   US Imp   Tot Vol   Trd Bal 
----   ------   ------   -------   ------- 
2005    350.6    431.6     782.2     -80.9 
2004    301.8    405.3     707.1    -103.5 
2003    508.4    378.2     886.6     130.2 
2002    419.5    394.7     814.2      24.8 
2001    432.8    424.0     856.8       8.8 
2000    448.9    337.6     786.5     111.3 
 
MONROE