VZCZCXRO5518
RR RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #2716/01 2121025
ZNY CCCCC ZZH
R 311025Z JUL 06
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 5978
INFO RUCNRAQ/IRAQ COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002716 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 07/26/2016 
TAGS: ECON EINV ETRD KPRV POL PREL IZ
SUBJECT: MIM DEPUTY MINISTER LOOKS BACK TO THE FUTURE 
 
Classified By: EconMinCouns Delare for reasons 1.4 (b) and (d). 
 
¶1.  (C) Summary:  In a July 24 meeting Deputy Minister Sami 
Araji of the Ministry of Industry & Minerals (MIM) said that 
a new investment law should pass the Council of 
Representatives (CoR) in September or October of this year. 
He also said a draft privatization law is waiting for Council 
of Ministers (CoM) action, but that he has already proposed 
the CoM approve privatizing state-owned enterprises (SOEs) 
under existing laws.  He argued that "rehabilitating" other 
SOEs prior to privatization will serve a number of useful 
purposes:  maintaining income for present employees for the 
immediate future and boosting the value of the properties to 
increase their sales price.  He noted that the GOI is 
examining how other Arab nations deal with enforcement of the 
Arab League boycott in order to avoid "hurting their own 
development" by excluding foreign firms entering their 
markets.  He also noted that it might take three years for 
Iraq to complete the WTO accession process.  End summary. 
 
------------------------ 
DRAFT GOI INVESTMENT LAW 
------------------------ 
 
¶2.  (SBU) New Econ Deputy and Econoffs called upon Dr. Sami 
Araji of the Ministry of Industry & Minerals (MIM) to follow 
up on earlier discussions with MIM during the visit of 
Secretary of Commerce Gutierrez.  Dr. Sami fully supports the 
 
SIPDIS 
Investment Law currently in the CoR as key to developing the 
private sector, improving economic growth, and creating jobs. 
 He added that the law will provide rights or guarantees to 
"strategic" investors who are interested in doing business in 
Iraq.  He predicted that the investment law would pass by 
October. 
 
--------------------------------------------- ----------------- 
STATE-OWNED FIRMS: WHY PRIVATIZE WHEN YOU NEED TO CREATE JOBS? 
--------------------------------------------- ----------------- 
 
¶3.  (C) Dr. Sami said he fully supports transitioning Iraq to 
a private-sector economy, but described Iraq's public sector 
as the best creator of jobs right now because the private 
sector is still "too weak."  He stressed the need to 
"rehabilitate" the MIM's SOEs to get people working 
(including people fired from SOEs by Saddam), to increase the 
value of the SOEs, and to stimulate Iraq's economy.  He 
believes the GOI would need $2 billion for this task and said 
that he was in discussion with the Ministry of Finance (MoF) 
to enable Iraqi banks to provide these funds, although he 
noted that the MoF has a great many problems itself now. 
 
¶4.  (C) When queried about privatizing Iraq's SOEs, Dr. Sami 
said that a draft privatization law was submitted to the CoM 
in March of this year, but the CoM has not acted on it.  As 
part of the draft law, he said the GOI would retain at least 
15% ownership in each privatized SOE, to be sold on the stock 
market at an opportune time.  The remainder of each SOE would 
be sold to a strategic investor (45%) (who could be a foreign 
investor), other interested investors (25%), and SOE 
employees (15%).  It is unclear why MIM wants to maintain 15% 
ownership in its SOEs.  When queried on this late last year, 
Taha I. Mohammad, advisor to the Minister at MIM, said:  "The 
public is not ready for the government to completely exit the 
scene yet."  The reality is more likely that the MIM is not 
ready to completely relinquish control in Iraq's economy. 
 
¶5.  (C) Dr. Sami related that in October 2005 he had proposed 
to the Council of Ministers (CoM) of the time that nine SOEs 
be privatized under law #22, but that the CoM failed to act 
for "political reasons."  He has therefore resubmitted the 
proposal to the present CoM and hopes it will act.  (Note: 
Though Dr. Sami is comfortable with Law #22, we believe it 
lacks a transparent process for privatization and an 
internationally accepted method for valuing Iraq's SOEs. 
Privatizing under existing Iraqi law could open the door to a 
corrupt process, something we have repeatedly told relevant 
Iraqi interlocutors.  End note.) 
 
------------------- 
ARAB LEAGUE BOYCOTT 
------------------- 
 
¶6.  (C)  Econoffs also called Dr. Sami's attention to the 
problems the Arab League Boycott (ALB) has created for 
foreign investors trying to enter Iraq.  He was aware of 
Pepsi's problems inhibiting its investment plans.  Econoff 
noted that ABRO Industries has also been unable to register 
its trademarks with the MIM's Trademark Office.  (Both U.S. 
companies have been unable to receive their trademark 
certification because the Trademark Office at the MIM asked 
them to sign an Arab League Boycott declaration as part of 
their registration.)  The Deputy Minister responded with a 
standard GOI answer, namely that the GOI is working on the 
 
BAGHDAD 00002716  002 OF 002 
 
 
issue, and that the CoM will conduct a "review" on how other 
Arab countries handle the problem to ensure foreign 
investment and trade does not suffer.  Dr. Sami did flag, 
however, the importance of protecting intellectual property 
rights as a requirement for Iraq in its efforts towards WTO 
accession. 
 
------------------------------------------ 
ANTI-DUMPING LEGISLATION AND WTO ACCESSION 
------------------------------------------ 
 
¶7. (SBU)  Regarding Iraq's progress towards WTO accession, 
Dr. Sami Araji predicted that it would take Iraq three years 
to complete the process, but noted this observation was just 
his personal opinion.  He also brought up anti-dumping 
legislation that he said is with the Council of Ministers for 
review as a necessary measure to protect Iraq from other 
countries that may want to dump cheap products on the Iraqi 
market.  Dr. Sami raised several times the need to "protect 
the Iraqi investor." 
 
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COMMENT 
------- 
 
¶8.  (SBU) In this latest discussion, Dr. Sami reprised the 
points he made to Commerce Secretary Gutierrez during his 
recent visit.  As should be evident, there is little interest 
at MIM in disrupting the job creation machinery of the SOEs 
-- even as uncompetitive and uneconomic as they are.  We are 
left puzzled as to whether he really believes foreign 
investors could be enticed to "rehabilitate" Iraqi SOEs under 
the sort of terms for "privatization" that he has put 
forward.  EconCounselor recently observed to him that he 
appeared to be intent on following some of the worst models 
of East European experience as he wrestled with 
privatization.  To that Dr. Sami answered that they would 
avoid the mistakes made by the Russians.  Our verdict: 
little vision at MIM.  Pressure for change will have to come 
from other sources.  Regarding ALB, we are being kept in a 
holding pattern.  Given the current international situation, 
our interlocutors simply see this issue as radioactive -- 
even if they are persuaded as to the harm that continuing 
adherence to boycott measures may be doing to beneficial 
investment and trade prospects. 
SCOBEY