C O N F I D E N T I A L RIYADH 000935

SIPDIS

STATE FOR NEA/ARP (HARRIS)
DEPT PASS USTR FOR JASON BUNTIN

E.O. 12958: DECL: 07/12/2010
TAGS: ETRD ECIN PREL GCC SA AS NZ JA
SUBJECT: GCC TRADE NEGOTIATIONS DOWN UNDER: STICKING POINTS
AND FRUSTRATION WITH THE GCC

Classified By: DCM David Rundell reasons 1.4 (b) and (d).

SUMMARY
——-

¶1. (C) At a diplomatic roundtable on free trade agreement
(FTA) negotiations with the Gulf Cooperation Council (GCC),
the Australian and New Zealand DCMs expressed fatigue and
frustration with their respective experiences. The New
Zealand DCM said his government is prepared to pull out after
the next round if the two sides cannot make significant
progress. Both said their governments are frustrated with
the GCC as a negotiating partner, and both agreed the GCC
consultations between negotiating sessions has proved to be a
major barrier to progress. End summary.

STICKING POINTS AND FRUSTRATION WITH THE GCC
——————————————-

¶2. (C) According to Australian DCM Roy Clogstoun, his
country’s trade agreement negotiations with the GCC are hung
up on the issue of the GCC’s current five percent tariff on
automobile imports (which Australia would like to eliminate)
and unresolved issues with the services and investment
sections of the agreement. While the current tariff is
relatively low, Australians fear another country (i.e. Japan)
could gain an advantage by negotiating a lower tariff
subsequently. New Zealand’s negotiations are stuck on the
issue of dairy products, though New Zealand DCM Peter Noble
also noted the services and investment portions of their
agreement were sub-optimal (Note: Reportedly, dairy and
sheep products account for 80 percent of New Zealand’s
exports to the GCC.). He described the dispute mechanism and
arbitration sections of the agreement as “acceptable,” but he
said his country was preparing to abandon the process after
the next round in October if negotiators did not make
substantial progress towards reaching an agreement by then.

¶3. (C) Both DCMs expressed frustration with the GCC, going so
far as to question the GCC’s motivation for negotiating the
agreements. Noble implied the Saudis may be using the
negotiations as a training exercise for future agreements
with larger trading partners, noting the Chinese had openly
done so with his country in bilateral trade negotiations.
Both emphasized repeatedly that the GCC’s lack of interim
consultations between member states seriously hampered
progress that otherwise might be easy to achieve. “They
don’t talk to each other between rounds of meetings,” one
said, “they just return to their capitals until the next
round.” The two DCMs asserted that Saudi Arabia controls the
GCC in negotiations and has used smaller GCC members as pawns
in the process — convincing other individual members to
pretend to be the lone holdout opposing a proposal, when in
fact all six member governments actually were in opposition.
Our contacts have said the members tend to act in concert to
distract attention from controversial issues like the human
rights records of individual GCC countries.

¶4. (C) Japanese DCM Fumio Iwai told Econoff in a separate
meeting that the GCC postponed the July round of its free
trade negotiations with Japan. “We are in the same boat as
the Australians,” he said, in that the sticking point in
their negotiations is the five percent auto tariff. Iwai
said the Saudis had the strongest opposition to lowering the
tariff, and he noted that the issue had been raised at the
highest bilateral levels.

COMMENT
——-

¶5. (C) Given GCC officials previously have told us they also
are in FTA negotiations with China, Japan, and Turkey, it
seems likely the New Zealand DCM’s fears that the GCC is
using its separate negotiations with Australia and New
Zealand as a training round may be well-founded.
Nevertheless, that does not mean the GCC wants them to fail.
The failure of EU - GCC negotiations in late 2008
demonstrated an inflexibility which also seems underway here.
One bright spot: both DCMs noted the successful conclusion
of U.S. FTAs with Bahrain and Oman had positively influenced
the negotiating atmosphere.
ERDMAN