ITALY ON STEEL: GIVE US SOMETHING TO WORK WITH

C O N F I D E N T I A L ROME 002706

SIPDIS

PASS USTR FOR ALLGEIER, DEILY, DAVIDSON, NOVELLI, LISER
EUR/WE, EB FOR A/S WAYNE, EB/TPP/BTA/DCT FOR WMOORE
PASS DOC FOR ITA/GALDONIS/SCLAEYS/DDEFALCO
E FOR CHASE, SECOR

E.O. 12958: DECL: 06/04/2007
TAGS: ETRD IT EUN
SUBJECT: ITALY ON STEEL: GIVE US SOMETHING TO WORK WITH

CONFIDENTIAL

PAGE 02 ROME 02706 051052Z
REF: (A) ROME 2266 (B) ROME 1853

CLASSIFIED BY: CLASSIFIED BY ECMIN MARGARET DEAN; REASON 1.5 B/D.


1. (C) SUMMARY. ARMED WITH AN EVIDENT PRESIDENT BUSH-PRIME
MINISTER BERLUSCONI UNDERSTANDING THAT UNILATERAL TRADE
ACTIONS SHOULD BE AVOIDED, ITALY IS LOOKING TO DAMPEN EC AND
MEMBER STATE CALLS FOR STEEL RETALIATION. ITALY'S ALTERNATE
133 REPRESENTATIVE, HOWEVER, TOLD VISITING EB ASSISTAMT
SECRETARY PRIOR TO THE 31 MAY 133 COMMITTEE MEETING THAT

SIPDIS
COOLING THE EC WOULD REQUIRE DEMONSTRABLE PROGRESS IN EC-USG
TALKS. ITALY'S 133 TITULAIRE TOLD ECOUNS ON 4 JUNE THAT
"PROGRESS" MEANS REGULAR USG ANNOUNCEMENTS OF EXCLUSIONS,
GOOD-FAITH NEGOTIATIONS ON COMPENSATION, AND A SHORTENING OF
THE THREE-YEAR LIFE OF USG SAFEGUARDS. HE CONFIRMED REPORTS
THAT THE EU WOULD TECHNICALLY SUSPEND U.S. CONCESSIONS ON 17
JUNE BUT DISMISSED THIS DEVELOPMENT AS A TECHNICAL MEASURE.
POST RECOMMENDS THAT WASHINGTON AGENCIES BEAR IN MIND THAT
THE PRESIDENT BUSH-PM BERLUSCONI UNDERSTANDING MAY PROVE
USEFUL AS THE STEEL CASE MOVES ALONG. END SUMMARY.


2. (C) DURING 30 MAY MEETINGS WITH PRIME MINISTER DIPLOMATIC
ADVISOR GIOVANNI CASTELLANETA AND MFA DIRECTOR GENERAL FOR EU
AFFAIRS ROCCO CANGELOSI, VISITING EB ASSISTANT SECRETARY TONY
WAYNE AND ECONOFF WELCOMED INDICATIONS THAT PRESIDENT BUSH
AND PRIME MINISTER BERLUSCONI HAD AGREED DURING THEIR 27 MAY
BILATERAL THAT UNILATERAL TRADE ACTIONS WERE INADVISABLE.
CASTELLANETA AND CANGELOSI BOTH INDICATED THAT BERLUSCONI HAD
ISSUED GUIDANCE THAT ITALY SHOULD WORK TO CALM THE DISPUTE
OVER STEEL. DURING A MEETING LATER ON 30 MAY, SANDRO
FANELLA, GOI ALTERNATIVE REPRESENTATIVE TO THE EU'S 133
CONFIDENTIAL

PAGE 03 ROME 02706 051052Z
COMMITTEE, CONFIRMED THAT THE GOI PARTICULARLY WANTS TO AVOID
UNILATERAL EU ACTION IN THE STEEL CASE. DURING THAT 30 MAY
MEETING AND A 4 JUNE CONVERSATION BETWEEN ECOUNS AND GOI 133
COMMITTEE TITULAIRE MARIO GERBINO, SANDWICHED AROUND THE 31
MAY 133 COMMITTEE MEETING, THE ITALIANS LAID OUT THEIR VIEW
OF HOW EVENTS NEED TO PLAY OUT IN ORDER TO OBVIATE UNILATERAL
EU RETALIATION.


3. (C) FANELLA AND GERBINO HAVE BEEN CONVINCED BY EC LAWYERS
THAT THE EU MUST TAKE SOME AFFIRMATIVE ACTION BY 17 JUNE TO
AVOID WAIVING ARTICLE 8.2 RIGHTS. GERBINO SAID THIS DECISION
HAS BEEN TAKEN AND WOULD BE ANNOUNCED AT THE 17 JUNE GENERAL
AFFAIRS COUNCIL MEETING. BUT HE QUICKLY ADDED THAT THE
EFFECT WOULD BE MINIMAL: CONCESSIONS WOULD BE SUSPENDED, BUT
THERE WOULD FOLLOW AN IMMEDIATE SUSPENSION OF THE SUSPENSION.
GERBINO'S SENSE OF THE 31 MAY MEETING WAS THAT MOST MEMBER
STATES WOULD BE HAPPY TO FOREGO UNILATERAL RETALIATION,
ASSUMING EU RIGHTS WERE PRESERVED TO THEIR SATISFACTION,
PROVIDED EU-USG SETTLEMENT TALKS WERE PROGRESSING.


4. (C) GOING INTO THE 31 MAY MEETING FANELLA STILL HOPED THAT
EU-USG PROGRESS WOULD TAKE THE FORM OF COMPENSATION OR
REBALANCING. A/S WAYNE DID NOT DISABUSE HIM BUT PUSHED THE
DISCUSSION TOWARDS THE EXCLUSION PROCESS AND NOTED THAT THERE
WAS NO WTO PRECEDENCE FOR COMPENSATION. COMING OUT OF THE
133 COMMITTEE MEETING, GERBINO HAD MORE DEFINITIVE BENCHMARKS
FOR MEASURING NEGOTIATION PROGRESS. HE SAID THAT THE EC
REPRESENTATIVES SAID THEY HAD BEEN ASSURED BY THE USG THAT
WEEKLY EXCLUSION ANNOUNCEMENTS WOULD BE INSTITUTED IN THE
NEAR FUTURE. HE STILL EXPECTS USG MOVEMENTS ON COMPENSATION.
WHEN ECOUNS REITERATED THAT THERE IS NO PRECEDENT FOR
CONFIDENTIAL

PAGE 04 ROME 02706 051052Z
COMPENSATION IN A SAFEGUARDS CASE, GERBINO REPLIED, "THERE'S
ALWAYS A FIRST TIME." FINALLY, HE SAID THE EC WILL BE
LOOKING FOR THE USG TO SHORTEN THE THREE-YEAR LIFE OF OUR
SAFEGUARDS. WITHOUT HANDICAPPING HOW MUCH PROGRESS ON EACH
BENCHMARK WOULD SUFFICE TO ALLOW THE EU TO CONTINUE TO STAND
DOWN FROM IMPLEMENTATION OF RETALIATION, GERBINO SAID HE IS
CONFIDENT THAT IMPLEMENTATION COULD BE DELAYED UNTIL AT LEAST
OCTOBER.


5. (C) COMMENT. THE ITALIANS CLEARLY ARE LOOKING FOR A FIG
LEAF THAT WOULD ALLOW THEM TO CONTINUE TO ADVOCATE WITHIN THE
EU FOR MODERATION (REFS A AND B) PER PM BERLUSCONI'S WISHES.
WE SHOULD CONTINUE TO WORK ON THE IMPORTANT OPENING CREATED
BY PRESIDENT BUSH'S DISCUSSIONS WITH THE PM, WHICH MAY MEAN
GETTING THE PM'S OFFICE AND MFA TO KEEP PRESSURE ON THE
DEPUTY MINISTRY OF FOREIGN TRADE. IF, AS GERBINO BELIEVES, A
USG DECISION HAS BEEN TAKEN TO ANNOUNCE EXCLUSIONS ON A
WEEKLY BASIS, THIS SHOULD SUFFICE FOR ITALY'S PURPOSES FOR
THE TIME BEING. ON THE OTHER HAND, IF
COMPENSATION/REBALANCING TALKS BECOME STUCK, THE ITALIANS
WILL BEGIN TO LOOK FOR USG MOVEMENT ON THE REMAINING
BENCHMARK -- THE DURATION OF OUR SAFEGUARDS.


6. (U) A/S WAYNE CLEARED ON THIS MESSAGE.
POPE

CONFIDENTIAL

>
2002ROME02706 - Classification: CONFIDENTIAL