ITALY MAY LET PHARMACEUTICAL COMPANY ENTER LIBYA

S E C R E T SECTION 01 OF 02 ROME 001748 SIPDIS NP/CBM FOR ROE TREASURY FOR OFAC PASS DOC FOR BXA/CBC/SEEVARATNAM AND BROWN E.O. 12958: DECL: XI, X5 TAGS: ETRD ETTC IT PARM ETTC IT PARM PREL PRELETRD SUBJECT: ITALY MAY LET PHARMACEUTICAL COMPANY ENTER LIBYA SECRET PAGE 02 ROME 01748 01 OF 02 081729Z REF: (A) STATE 57323 (B) 01 ROME 6495 CLASSIFIED BY: ECMIN MARGARET DEAN; REASONS 1.5 B/D,X5. ¶1. (S) SUMMARY. THE ITALIAN OFFICIAL CHAIRING AN INTERMINISTERIAL LICENSING COMMITTEE IS "INCLINED TO SUPPORT" THE APPLICATION OF AN ITALIAN PHARMACEUTICAL COMPANY FOR A LICENSE TO CONTRACT WITH THE GOVERNMENT OF LIBYA TO REFURBISH FACILITIES AT RABTA, LIBYA IN ORDER TO ALLOW THEIR PRODUCTION OF MEDICINES. THE APPLICATION, FIRST SUBMITTED IN FEBRUARY 2002, WILL NEXT BE CONSIDERED AT THE COMMITTEE'S 16 APRIL MEETING AND MAY BE READY FOR DISPOSITION IN MAY. PER REF A, POST CONVEYED THE USG'S EXTREME CONCERN THAT LIBYA REMAINS DETERMINED TO DEVELOP CHEMICAL AND BIOLOGICAL WEAPONS USING JUST THIS KIND OF CIVILIAN COVER. MFA OFFICIALS, HOWEVER, SEE THE CONTRACT -- PROBABLY SUPPORTED BY A PARALLEL GOVERNMENT-TO-GOVERNMENT EXCHANGE OF LETTERS AND LIBYAN ACCESSION TO THE CHEMICAL WEAPONS CONVENTION -- AS A MEANS OF ENSURING THAT LIBYA USES RABTA ONLY FOR LICIT PURPOSES. GIVEN MFA'S INCLINATION TO APPROVE THE APPLICATION, POST ADVISES THAT A SERIOUS EFFORT TO DERAIL THE LICENSE WOULD DEMAND VERY HIGH-LEVEL WASHINGTON ATTENTION. END SUMMARY. ¶2. (S) AS FORESEEN IN DECEMBER WHEN THE GOI FIRST ASKED FOR THE USG'S POSITION, AN ITALIAN COMPANY, PHARMACHIM OF MILAN, HAS APPLIED FOR A GOI LICENSE TO CONTRACT WITH THE GOVERNMENT OF LIBYA TO REFURBISH CHEMICAL PRODUCTION FACILITIES AT RABTA, ACCORDING TO MFA'S MIDDLE EAST DEPUTY DIRCTOR GENERAL FRANCESCO CERULLI AND NONPROLIFERATION ISSUES COORDINATOR UGO DEMOHR. DISPLAYING GENERAL FAMILIARITY WITH THE CASE, SECRET PAGE 03 ROME 01748 01 OF 02 081729Z CERULLI RESPONDED TO ECONOFF'S MARCH 29 PRESENTATION OF REF A DEMARCHE BY URGING WASHINGTON TO APPRECIATE THAT THE COMPANY IS NOT APPLYING MERELY TO EXPORT CHEMICALS TO LIBYA (HE DOUBTED THE GOI WOULD APPROVE SIMPLE EXPORTS) BUT WOULD REMAIN IN LIBYA FOR TEN YEARS TO MANAGE THE PLANT, PRESENTING AN ONGOING OPPORTUNITY FOR ITALY TO SHAPE AND MONITOR EVENTS. HE DEFERRED TO DE MOHR, WHO CHAIRS THE INTERMINISTERIAL COMMITTEE CHARGED WITH RULING ON THE APPLICATION, FOR SPECIFICS OF THE STATUS OF THE CASE. ¶3. (S) IN AN APRIL 4 MEETING WITH ECONOFF, DE MOHR IDENTIFIED THE COMPANY AS PHARMACHIM OF MILAN AND SAID ITS FEBRUARY 2002 APPLICATION TO CONTRACT WITH THE LIBYAN GOVERNMENT WOULD BE CONSIDERED AT HIS COMMITTEE'S 16 APRIL MEETING. HE SAID ITALY IS ABOUT TO CRIMINALIZE UNLICENSED DUAL USE TECHNOLOGY TRANSFERS, EFFECTIVELY STRENGTHENING HIS COMMITTEE. PHARMACHIM CANNOT EXPORT CHEMICALS TO LIBYA UNDER EXISTING LAW AND SOON, HE EXPLAINED, WOULD BE UNABLE TO EXPORT KNOW-HOW EITHER. THE COMPANY IS EXPECTED TO SUBMIT CERTAIN SUPPLEMENTAL INFORMATION BY THE 16 APRIL MEETING AND DE MOHR SPECULATED THE APPLICATION COULD BE RIPE FOR A COMMITTEE RULING BY ITS MAY MEETING. HE SAID THAT NONE OF THE COMMITTEE MEMBERS -- WHICH INCLUDE REPRESENTATIVES FROM THE MINISTRIES OF DEFENSE, PRODUCTIVE ACTIVITIES, ECONOMY AND FINANCE, THE DEPUTY MINISTRY OF FOREIGN TRADE, AND THE ITALIAN INTELLIGENCE AGENCY -- HAS TO DATE INDICATED PARTICULAR CONCERN ABOUT THE APPLICATION. ¶4. (S) DE MOHR AND CERULLI EXPLAINED HOW THE APPLICATION CAME ABOUT AND OUTLINED SOME FACTORS TO BE CONSIDERED IN ITS DISPOSITION. DE MOHR SAID THERE WAS NO FORMAL TENDER; SECRET PAGE 04 ROME 01748 01 OF 02 081729Z RATHER, LIBYAN OFFICIALS APPROACHED PHARMACHIM AND THE BRITISH COMPANY GLAXOSMITH TO GAUGE INTEREST. HE SUGGESTED THAT THE COMMITTEE, IF OTHERWISE DISPOSED TO GRANT THE APPLICATION, WOULD LIKELY INSIST THAT PHARMACHIM'S LICENSE BE CONTINGENT UPON A GOVERNMENT-TO-GOVERNMENT EXCHANGE OF LETTERS GUARANTEEING TO THE GOI THE RIGHT TO SEND INSPECTORS FROM THE MINISTRY OF HEALTH AND ELSEWHERE TO RABTA THROUGHOUT THE LIFE OF THE CONTRACT. ¶5. (S) CERULLI SAID THE GOI IS PUSHING HARD IN TRIPOLI FOR LIBYA TO ACCEDE TO THE CHEMICAL WEAPONS CONVENTION AND SUGGESTED THAT LIBYAN ACCESSION SHOULD ALLAY USG FEARS ABOUT RABTA. DE MOHR INSISTED THAT LIBYA HAD AGREED TO SIGN THE CWC, ALTHOUGH HE PREDICTED THAT THE RATIFICATION PROCESS WOULD BE SLOW. HE SAID THAT LIBYAN ACCESSION TO THE CWC WOULD BE A POSITIVE DEVELOPMENT BUT ADDED THAT THE COMMITTEE WOULD VALUE MUCH MORE THE KIND OF BILATERAL INSPECTION GUARANTEES LIBYA ACCEPTS. "AFTERALL," HE SAID, "CWC MEMBERS HAVE BEEN KNOWN TO CHEAT." ¶6. (S) ECONOFF READ OR PARAPHRASED REFTEL TALKING POINTS TO BOTH CERULLI AND DE MOHR IN THEIR ENTIRETY, EMPHASIZING USG SKEPTICISM ABOUT ANY FORWARD MOVEMENT, NO MATTER HOW CHARACTERIZED, ON CHEMICAL FACILITIES IN LIBYA AND ESPECIALLY AT RABTA. TO DE MOHR, A PRIMARY GOI REPRESENTATIVE TO THE AUSTRALIA GROUP, ECONOFF FLAGGED IN PARTICULAR THE TALKING SECRET SECRET PTQ8681 PAGE 01 ROME 01748 02 OF 02 081729Z ACTION NP-00 INFO LOG-00 AID-00 AMAD-00 ACQ-00 CEA-01 CIAE-00 CIP-00 COME-00 CTME-00 DODE-00 DOEE-00 SRPP-00 DS-00 EB-00 EUR-00 EXIM-01 E-00 VC-00 FRB-00 HHS-01 H-01 TEDE-00 INR-00 ITC-01 LAB-01 L-00 VCE-00 AC-01 NEA-00 NRRC-00 NSAE-00 NSCE-00 OES-01 OMB-01 OPIC-01 PM-00 ACE-00 P-00 SCT-00 SP-00 SSO-00 SS-00 STR-00 T-00 USIE-00 BBG-00 SSD-00 PMB-00 DSCC-00 PRM-00 DRL-02 G-00 NFAT-00 SAS-00 /012W -------------- 80CA93 081729Z /38 O 081638Z APR 02 FM AMEMBASSY ROME TO SECSTATE WASHDC IMMEDIATE 3158 INFO AMEMBASSY LONDON IMMEDIATE DEPT OF TREASURY WASHDC IMMEDIATE AMCONSUL FLORENCE AMCONSUL MILAN AMCONSUL NAPLES S E C R E T SECTION 02 OF 02 ROME 001748 SIPDIS NP/CBM FOR ROE TREASURY FOR OFAC PASS DOC FOR BXA/CBC/SEEVARATNAM AND BROWN E.O. 12958: DECL: XI, X5 TAGS: ETRD ETTC IT PARM ETTC IT PARM PREL PRELETRD SUBJECT: ITALY MAY LET PHARMACEUTICAL COMPANY ENTER LIBYA SECRET PAGE 02 ROME 01748 02 OF 02 081729Z POINT SUMMARIZING AG EVIDENCE THAT LIBYA HAS ALREADY RESTARTED ITS CHEMICAL WEAPONS PROGRAM. AGREEING FULLY THAT RABTA WAS IN THE PAST A CW FACILITY, DE MOHR ARGUED IN REPLY THAT A GOI LICENSE TO PHARMACHIM COMBINED WITH A GOVERNMENT-TO-GOVERNMENT AGREEMENT COULD LESSEN THE LIKELIHOOD OF LIBYA REALIZING ANY LINGERING CW AMBITIONS. ¶7. (S) DE MOHR UNDERSTANDS THE LIBYANS HAVE GIVEN THE NOD TO PHARMACHIM OVER GLAXOSMITH BUT ALSO HEARS THAT GLAXOSMITH, ALREADY A DOMINANT PLAYER IN THE AFRICAN MARKET, HAS NOT GIVEN UP. HIS COMMITTEE, THEREFORE, IS NOT INCLINED TO LINGER OVER THE APPLICATION. ¶8. (S) COMMENT. THE ITALIANS ARE VERY WILLING TO DISCUSS THIS MATTER WITH US. CERULLI WAS PIQUED THAT THE FORMAL USG MESSAGE DID NOT ACKNOWLEDGE WHAT TO HIM ARE OBVIOUS INTELLIGENCE ADVANTAGES IN ALLOWING PHARMACHIM TO PROCEED. HIS RESPONSE, COMBINED WITH DE MOHR'S PRELIMINARY INCLINATION TO SUPPORT THE APPLICATION, PERSUADE US THAT THE GOI WILL VERY LIKELY APPROVE THIS APPLICATION. TO HAVE ANY PROSPECT OF SUCCESS, A USG EFFORT TO DERAIL THE LICENSE WOULD HAVE TO ORIGINATE AT A VERY HIGH USG LEVEL AND, ENGAGING THE GOI AT A SIMILAR LEVEL, AND SPECIFICALLY ADDRESS THE GOI VIEW THAT ITALIAN PARTICIPATION WOULD BE THE BEST WAY TO PREVENT USE OF RABTA FOR ILLICIT B/CW PRODUCTION. SEMBLER SECRET > 2002ROME01748 - Classification: SECRET