VZCZCXRO7738
PP RUEHBC RUEHDA RUEHDE RUEHDH RUEHIHL RUEHKUK
DE RUEHC #3362/01 3071739
ZNR UUUUU ZZH
P 031716Z NOV 09
FM SECSTATE WASHDC
TO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 9336
INFO IRAQ COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 04 STATE 113362 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EINV ETRD IZ
SUBJECT: DIALOGUE ON ECONOMIC COOPERATION:  SESSIONS ON 
INVESTMENT, TRADE, AND PRIVATE SECTOR DEVELOPMENT 
 
¶1. (SBU) SUMMARY:  The afternoon sessions of the October 19 
Dialogue on Economic Cooperation (DEC) focused on trade, 
investment, industry, and private sector development. 
Throughout these sessions, USG and Government of Iraq (GOI) 
interlocutors acknowledged that Iraq's investment climate was 
"improving," and cited the recently passed amendment to the 
National Investment Law as a positive signal to potential 
investors.  The GOI representatives also mentioned progress 
in resolving outstanding business cases and on World Trade 
Organization (WTO) accession.  Nevertheless, both sides 
agreed that unresolved issues continued to harm investment 
and trade, including lack of passage of key bilateral 
agreements, the continued use of Arab League Boycott 
language, and overbearing government involvement in key 
sectors such as aviation and telecommunications.  These 
sessions were co-chaired by Acting Under Secretary of 
Commerce (U/S) for International Trade Michelle O'Neill and 
Iraqi Minister of Oil (MinOil) Dr. Hussain al-Shahristani. 
The morning sessions of the DEC, which focused on public 
financial management, financial services, and energy, will be 
reported separately. 
 
- - - - - - - - - - - - - - - - - - 
Investment and Trade 
- - - - - - - - - - - - - - - - - - 
 
¶2. (SBU) U/S O'Neill opened the afternoon session by 
highlighting the participants' common purpose of furthering 
bilateral economic cooperation and encouraging U.S. 
investment in Iraq.  She also provided an overview of the 
issues under discussion, touching upon investment 
commissions, outstanding problem cases, key bilateral 
agreements, the National Investment Law, and World Trade 
Organization accession.  MinOil Shahristani acknowledged the 
GOI's commitment to improving the investment climate, and 
highlighted the October 13 passage of the first amendment to 
the National Investment Law (No. 13) as a positive signal to 
potential investors. 
 
¶3. (SBU) Responding to U/S O'Neill's request for an update on 
the status of the National Investment Commission (NIC) and 
Provincial Investment Commissions (PICs), Dr. Sami al-Araji, 
NIC Chairman, explained that the recently-passed amendment to 
the National Investment Law also places heavy emphasis on the 
relationship between the NIC and the PICs.  He elaborated 
that the PICs were not under the control of the NIC, which 
was meant to mitigate the potential for political influence. 
Dr. Sami said that, under the new amendment, the PICs would 
be given more authority to encourage and work with foreign 
investors, within the framework of the national investment 
plan.  Dr. Sami recognized the potential for and encouraged 
PICs to partner with those states in the United States that 
shared commonalities in agriculture, oil, and gas, for 
example. 
 
¶4. (SBU) Dr. Sami added that the new amendment allowed 
foreigners to own land for housing projects and placed other 
land designated for investment projects under the authority 
of the NIC instead of different ministries.  Dr. Sami 
stressed that the NIC was cooperating with the PICs to 
appropriate land in accordance with national and provincial 
investment plans.  The amendment also secured privileges for 
public-private partnerships, especially those involving 
state-owned enterprises, and reduced the review period for 
project applications from 45 to 15 days.  Dr. Sami announced 
an upcoming private investment real estate development that 
will create 500,000 residential units throughout Iraq. 
 
¶5. (SBU) U/S O'Neill and Embassy Baghdad Minister-Counselor 
for Economic Coordination John Desrocher raised specific 
outstanding problem cases and business disputes:  GE power 
turbines; OMMA Healthcare's proposal to build a hospital in 
Baghdad; Iraqi Airways' air-cargo monopoly; and a plan to 
create a new, state-owned mobile telecommunications company. 
Desrocher called for a return to a more open air-cargo 
market, and encouraged that the government not be an operator 
in the telecommunications sector but remain only an 
independent regulator.  Dr. Sami reiterated that the Iraqis 
were working through these and other investment challenges by 
establishing a legal committee to examine the issues and an 
investment court to help resolve disputes.  GOI is exploring 
the New York Convention on Arbitral Awards, but are also 
looking into other mechanisms (i.e. London and Paris 
conventions) to see which one is most suitable for Iraq.  On 
GE, he suggested that the recent payment, made possible by 
issuing treasury bills through the Central Bank of Iraq, was 
 
STATE 00113362  002 OF 004 
 
 
evidence of the GOI's commitment to meeting its financial 
obligations and stressed that the GOI was concentrating on 
future payments.  Regarding other outstanding issues, such as 
OMMA Healthcare's aborted hospital construction bid, 
air-cargo disruption, and the challenges posed by a 
state-owned telecommunications carrier, Dr. Sami indicated 
that the GOI was aware of these issues.  He also noted that 
there might have to be a compromise because local enterprises 
do not want to be shut out of the market by international 
companies and that further discussion was possible during the 
BIC.  On the air-cargo issue, Shahristani seemed genuinely 
surprised by the news of the FedEx pullout and stressed that 
problems like the air-cargo situation, if they could not be 
resolved by the appropriate ministry, should be taken up by 
the Council of Ministers. 
 
¶6. (SBU) U/S O'Neill also requested that the GOI eliminate 
Arab League Boycott (ALB) language from tenders, mostly a 
problem with Health Ministry tenders.  Acting Minister of 
Trade (MinTrade) Safaa al-Deen al-Safi noted Iraq's 
obligations under its multilateral agreements with countries 
that adhere to the ALB.  Ambassador Haslach cautioned against 
the potential loss of tax benefits and disincentive to 
investors if ALB language is retained, and noted that many of 
Iraq's neighbors have found ways around the ALB obligations. 
In response, MinTrade al-Safi said that the GOI would 
consider examples set by other countries in dealing with the 
matter in view of their international obligations. 
 
¶7. (SBU) U.S. Export-Import (Ex-Im) Bank Senior Vice 
President John McAdams assured the GOI representatives that 
Ex-Im Bank was very open to working with Iraq, and would 
review its risk rating for Iraq following the International 
Monetary Fund's (IMF) upcoming country report on Iraq.  He 
indicated, however, that to undertake significant projects, 
Ex-Im would need to put the risk on a third party.  He noted 
that investors needed insurance and guarantees and that the 
GOI had to provide risk mitigation and a reasonable assurance 
of repayment, stressing that proceeds from oil sales could 
pay off infrastructure debt.  MinOil Shahristani stated that 
"Iraq is a country that can pay off its debt," adding that an 
oil deal had been approved only days before and that two more 
would be initiated in a few days.  However, he also countered 
that many U.S. regulators hinder investment in Iraq and that 
it is not solely the issues in Iraq that prevent investment. 
 
- - - - - - - - - - - - - - - - - - - - - - - 
TIFA AND WTO DISCUSSION 
- - - - - - - - - - - - - - - - - - - - - - - 
 
¶8. (SBU) Moving to trade issues, Deputy Assistant United 
States Trade Representative for WTO and Multilateral Affairs 
Bruce Hirsh led the discussion, urging the GOI to ratify the 
bilateral Trade and Investment Framework Agreement (TIFA), 
which has been pending approval since 2005.  He explained 
that ratification would send an important signal that the 
bilateral economic relationship had matured by expanding 
trade ties between our two nations.  MinOil Shahristani 
declared that the GOI fully supported the TIFA, but he 
cautioned that delays in Iraq's parliament are usually 
politically motivated.  Nevertheless, Shahristani said the 
GOI was hopeful that the new parliament would ratify the 
U.S.-Iraq TIFA after the January 2010 elections, with 
ratification of other bilateral agreements to follow. 
 
¶9. (SBU) MinTrade al-Safi stated that the GOI was maintaining 
a steady course toward accession.  He assured the U.S. 
representatives that the GOI was taking steps to set up a 
Working Party meeting in early 2010.  He noted that laws 
focusing on intellectual property rights, sanitary and 
phyto-sanitary measures, and technical barriers to trade had 
been drafted and were under internal review, and that draft 
customs legislation had been sent to the parliament.  DAUSTR 
Hirsh urged al-Safi to submit draft legislation to the WTO to 
ensure consistency with WTO rules and to avoid having to make 
future amendments to enacted legislation.  He also pressed 
the Minister of Trade to submit the initial goods and 
services market access offers to the WTO, which was required 
before the next Working Party meeting could be scheduled. 
Dr. Sami Khairallah, Assistant Director General and WTO 
Coordinator for the Ministry of Trade, explained that the GOI 
had finalized its applied tariff schedule and had also 
established the tariff bindings intended for submission to 
the WTO.  He noted that the bindings proposed were not 
significantly higher than the applied rates.  With respect to 
trade in services, the GOI had reviewed and drafted a 
services offer covering about 89 of 152 subsectors, 
Khairallah added.  The relevant Ministries gave the draft 
services offer to the National WTO Committee, which reviewed 
it and referred it back to the Ministries for changes. 
 
 
STATE 00113362  003 OF 004 
 
 
- - - - 
GSP 
- - - - 
 
¶10. (SBU) During a discussion of the pending U.S. Generalized 
System of Preferences (GSP) labor petition requesting removal 
of Iraq's GSP duty-free benefits, Gregory Schoepfle, Director 
of the Office of Trade and Labor at the Bureau of 
International Labor Affairs, Department of Labor (DOL), 
stressed the importance of labor law reform and raised the 
possible withdrawal of Iraq's duty-free GSP benefits on the 
basis of inadequate protection of workers' rights.  MinTrade 
al-Safi indicated that a new labor law had been drafted, 
although further progress had been limited.  Al-Safi noted 
repeatedly that the draft law would improve the situation for 
workers in the "private sector."  He did not offer any 
comment on when the draft law would be presented to 
parliament or whether provisions addressing the public sector 
had been removed from the draft bill.  Referencing Decree 
8750, by which all trade union bank accounts had been frozen, 
the Minister of Trade noted that the decree had been made in 
response to political activities by the unions, and that 
unions could apply to the government for release of the 
frozen funds after they "prove that they are on the right 
track."  Schoepfle offered DOL technical assistance in 
preparation of the draft labor law and encouraged speedy 
reform. 
 
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 
- - - 
Industry and Private Sector Development 
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 
- - - 
 
¶11. (SBU) Opening the second afternoon session, USAID Special 
Assistant Administrator for the Middle East George Laudato 
applauded the extraordinary growth in small and medium 
enterprises (SME), calling it "a success story in the 
making."  Laudato called for the removal of restrictions in 
lending, more transparency, and greater availability of 
financing for SMEs throughout Iraq.  Dr. Sami agreed and said 
that one of the GOI's priorities was to activate 38,000-plus 
registered SMEs in Iraq, half of which were "under 
construction."  Dr. Sami noted that, though Iraq was very 
"under-banked," the GOI could borrow against existing 
retirement funds and use the money for projects in private 
sector development.  In addition, credit unions could also 
work well to finance SMEs.  Dr. Sami advocated low-interest 
(one to two percent) loans with long repayment periods for 
SMEs, but Central Bank of Iraq Governor Dr. Sinan al-Shabibi 
indicated that interest-rate policy was driven by inflation 
and price stability concerns.  He also noted that subsidies 
were not the best option to unlocking credit, and that a 
regulatory environment for this sector needed to be created. 
(Comment:  We have some concern with this idea, as it might 
undermine the ability of private banks to fill this need. 
End Comment.) 
 
¶12. (SBU) In response to Iraqi requests for OPIC financing in 
Iraq, OPIC Chief of Staff John Moran urged the Iraqis to pass 
the Investment Incentive Agreement, which, like the TIFA, had 
been pending since 2005.  Reiterating the possibilities for 
OPIC activities in Iraq, Moran explained that OPIC could only 
invest in for-profit institutions, and that, for OPIC to 
invest in CHF International (a micro-finance NGO), CHF needed 
to be licensed as a non-banking financial and for-profit 
institution.  Dr. Sami thanked OPIC for the USD 50 million in 
financing for the five-star Summit Hotel project in Baghdad, 
whose construction has already begun and expected to last 24 
months with planned opening scheduled for June 2011. 
 
¶13. (SBU) The agricultural portion of the discussion was 
abbreviated, as the Minister of Agriculture fell ill early in 
the day.  Nevertheless, John Brewer, Deputy Assistant 
Administrator for the Foreign Agricultural Service and 
USAID's George Laudato were able to note some of the legal 
and regulatory measures the GOI needed to take, including 
streamlining the Public Distribution System and defining the 
government,s role in the agricultural sector more clearly. 
 
¶14. (SBU) U.S. Trade and Development Agency (USTDA) Regional 
Director Carl Kress gave a brief overview of USTDA's prior 
activities in Iraq and potential for new projects.  USTDA has 
conducted orientation visits and training programs in several 
sectors, including oil and gas, rail, and information and 
communications technology.  Kress said that USTDA was 
exploring additional project proposals and would be inviting 
Iraqi delegates to participate in its May 2010 
electricity-sector conference to be held in Cairo. 
 
¶15. (SBU) Desrocher closed the gathering by encouraging both 
 
STATE 00113362  004 OF 004 
 
 
sides to continue the day's constructive discussions in 
Baghdad by energizing the Joint Coordinating Committee 
working groups under the SFA in the coming months.  MinOil 
Shahristani echoed Desrocher's remarks, expressing his 
appreciation for a meaningful exchange focused on building a 
strong economic foundation.  Shahristani agreed that the DEC 
was an important basis for mutual cooperation and dialogue. 
CLINTON