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Cablegate: The German-Iraqi Investment Promotion Agreement

VZCZCXRO7430
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #2501/01 2230611
ZNR UUUUU ZZH
R 100611Z AUG 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 8744
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEHRL/AMEMBASSY BERLIN 0101

UNCLAS SECTION 01 OF 02 BAGHDAD 002501

SENSITIVE

SIPDIS

C O R R E C T E D C O P Y (ADDED CAPTION)

E.O. 12958: N/A
TAGS: EINV ECON ETRD IZ GM
SUBJECT: THE GERMAN-IRAQI INVESTMENT PROMOTION AGREEMENT
AND THE JOINT ECONOMIC COMMISSION

REF: A. BAGHDAD 2440
B. BERLIN 1044
C. BERLIN 786

BAGHDAD 00002501 001.2 OF 002


1. (SBU) SUMMARY: According to the departing German
Ambassador to Iraq, the recently initialed German-Iraq
Investment Promotion Agreement (IPA) would be better
described as an "Investors' Protection" Agreement. Routine
to nearly all German bilateral commercial relationships,
similar documents are in force with 126 countries worldwide.
As important is the IPA is to establishing legal dispute
resolution mechanisms and to bolstering German investors'
confidence, the Ambassador also hailed the re-establishment
of the German-Iraq Joint Economic Commission (JEC). There
are still serious obstacles to a major return of German
investment to Iraq, but investors' interest is very high, and
the IPA and JEC are welcome steps toward re-establishing what
was once a very robust commercial relationship. End Summary.

2. (SBU) EconCouns and Econoff met with German Ambassador to
Iraq Hanns Schumacher and incoming Ambassador Christof Weil
at the German residence August 9 to learn more about the
recently initialed German-Iraq IPA (Reftel B). The IPA is
not really an investment agreement, Schumacher clarified, but
more of an "Investors' Protection" Agreement. (The FRG even
proposed to call the IPA a Protection Agreement, but GOI
officials expressed discomfort at the use of the term
"protection." Once the word "promotion" replaced
"protection," the Iraqis agreed to the text with no
substantive changes, Schumacher reported.) An IPA is
"routine" in all of Germany's significant commercial
relationships, and FRG currently has 126 such agreements in
place worldwide. IPAs have treaty status, and while the
German-Iraq IPA has only been initialed, Schumacher did not
foresee any political difficulties on the German side in
securing ratification. The agreement protects investors
specifically against government interference in their
operations and confiscation, and includes an arbitration
clause that refers unresolved disputes to the International
Centre for the Settlement of Investment Disputes (ICSID) in
The Hague. (We have been promised a copy of the document,
which will be signed once the German, English and Arabic
texts have been reconciled.)

3. (SBU) As important as the IPA will be to the eventual
return of German investment to Iraq, Schumacher was equally
enthusiastic about the revival of the German-Iraq Joint
Economic Commission (JEC), which held its first meeting in 20
years during PM al-Maliki's trip to Germany (Reftels). The
JEC is actually a GOI-FRG body, which the Iraqis, in
particular, feel is necessary to the bilateral commercial
relationship given the "mixed" economy that is emerging in
post-Saddam Iraq. The JEC will "break the ice" for
high-level government-to-government contact which, in
post-Socialist Iraq, the GOI still feels is necessary to
accommodate and facilitate business, Schumacher said.

4. (SBU) In more general terms, Schumacher underscored that
both large German corporations and SMEs have shown a
surprising amount of enthusiasm for returning or coming to
Iraq. Economic Minister Glos and other senior officials were
concerned that turnout among German business leaders might be
low for al-Maliki's visit, but in fact it was very
encouraging. Unlike most US businesses, German companies
have a long history of working in Iraq (Germany was Iraq's
leading trading partner for much of the 1970s and 80s,
Schumacher claimed) and understand the opportunities that are
emerging.

5. (SBU) EconCouns also raised the International Compact with
Iraq (ICI), asking if there were any provisions within it for
FRG- or private sector-led capacity building programs for
Iraqis. Schumacher noted that while German bilateral
technical assistance in security and education were ongoing,
there were no business-related programs in place. He
suggested that some business umbrella organizations were
considering the possibility of sponsoring 6-12 month
internships for Iraqis at German companies, but that this was
still only in the discussion stage. Schumacher proposed that
an effective means to address capacity-building and to
promote investment might be a major business seminar in
Berlin, to be hosted by the Iraqi Embassy and some of the
German-Arab business associations, with support from the FRG
and perhaps the US Embassy. EconCouns agreed that this was
an idea worth exploring, and might particularly bear fruit in
the housing and construction sectors, where foreign
investment partnerships could be crucial to mitigating the
dire housing shortages in Iraq.

6. (SBU) COMMENT: German enthusiasm for investing in Iraq is
tempered in the near-term by real obstacles, not the least of

BAGHDAD 00002501 002.2 OF 002


which remains security. However, as the security environment
continues to improve, the IPA and the re-establishment of the
JEC lay the groundwork for revitalizing what was once a very
robust German-Iraqi commercial relationship.

7. (SBU) COMMENT CONTINUED: The German presence in Baghdad
remains small, and teh FRG embassy here would be hard-pressed
to support a business conference such as that proposed in
para 5. Likewise, the Iraqi Embassy in Berlin may face
similar problems. A trilateral Iraqi-German-US sponsored
event might prove a more realistic scenario. If German and
European politicians see their companies straining at the bit
to expand their involvement in a cash-rich Iraq, they might
become more interested in expanding their political
involvement as well. We would welcome Embassy Berlin's
thoughts on this concept. End comment.
CROCKER

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