UPDATE 1-US, Dubai cos $1 bln lawsuit raises trade concerns

(Adds background, FTA context)

By John Irish

DUBAI, April 17 (Reuters) - A $1 billion lawsuit between a firm owned by the ruler of Dubai and a U.S. company could hinder free trade talks between the United States and the United Arab Emirates, a U.S. Congressional document shows.

The case, which revolves around 38 acres of land, was named in a letter from the U.S. House of Representatives to U.S. President George W. Bush on March 28 on how the United States must enforce laws to break trade barriers.

The letter, obtained by Reuters, urged the U.S. trade representative to press for a satisfactory resolution of the case through its trade negotiations with the UAE, including the Trade and Investment Framework Agreement (TIFA) that usually leads toward a Free Trade Agreement (FTA).

"The USTR should emphasize that a resolution of this case and any others like it is necessary for any further progress toward an FTA (free trade agreement)," the letter said.

The United States began free trade talks with the UAE three years ago, but progress stalled last March after the fast-track negotiation authority from the U.S. Congress expired.

The dispute between Tecom Investments, owned by Sheikh Mohammed bin Rashid al-Maktoum, and U.S. property developer Capital Partners revolves around land Capital Partners attempted to buy from Tecom in July 2005.

Capital Partners claims the land belonged to another Dubai government entity.

Capital Partners, which boasts former presidential candidate Tommy Thompson as one of its advisors, declined to comment on the case on Thursday.

"Out of respect for the arbitration process and our arbitrator, I cannot comment at this time," said Jonathan Wride, the company's managing director.

Capital Partners had initially agreed to develop a $1 billion mixed-use project on land almost opposite one of Dubai's man-made palm islands in a deal hailed as one of the first foreign investments in Dubai.

But in August, the U.S. private equity firm filed a $1 billion claim against Tecom for misrepresentation and breach of contract, Wride said in an e-mail statement to Reuters at the time.

Tecom, which is also negotiating joint venture deals with the world's second largest computer maker Dell (DELL.O), confirmed that the lawsuit was ongoing but gave no more details. The lawsuit is being handled by the Dubai International Arbitration Centre.

"The lawsuit between Tecom Investments and Capital is still under litigation," Tecom said in a statement sent to Reuters. "It is inappropriate for us to comment on its status or any related issue."

The U.S. Embassy in the UAE capital Abu Dhabi declined to comment on the case, but a diplomatic source said the U.S. administration wanted to eventually renew the fast-track.