USEU VISIT: ITALY'S MANAGEMENT OF ECONOMIC ISSUES

1. (C) Summary. In the interest of repairing U.S.-EU
relations during its upcoming EU presidency, the GOI plans to
manage existing U.S.-EU trade disputes as well as the ongoing
WTO trade talks in a way that will emphasize the positive.
Pro-biotech elements within the GOI express hope that EU
Parliamentary approval of traceability and labeling rules
will dampen anti-biotech Agricultural Minister Alemanno's
influence on the issue; some GOI officials speculate the U.S.
request for WTO consultations over the EU moratorium on
approvals may finally push the GOI to adopt a unified biotech
policy.



2. (SBU) The GOI is cautiously optimistic on prospects for
the Doha trade round, especially if CAP reform spurs forward
movement on the agricultural side of the talks. A solution to
the TRIPS/Access to Medicine issue is seen as essential for
the Cancun ministerial to avoid being termed a failure.
Italy will use its EU presidency to push greater protection
under the WTO for geographic indications. However, the GOI
appears inclined to defer extensively to the European
Commission on most other aspects of the Doha agenda,
including preparations for the September WTO Ministerial
Conference in Cancun. FSC, steel, and the EU chemical policy
will all require particular attention. The GOI supports a
greater industry role in the formulation of the chemicals
policy.



3. (SBU) Italy plans to hold a joint meeting of EU
Environment and Energy Ministers, as part of its strategy to
"introduce more economics into EU environmental policy."
Carbon sequestration and the hydrogen economy are also high
on the Italian agenda. Key transport priorities are
financing infrastructure and Galileo. While responsibility
for Galileo within the EU is divided among the telecoms,
transport and research councils, the GOI expects the M-code
decision to go to the European Council. In Italy, the
Ministry of Research has the lead, but final decisions on
Galileo are expected to be made by the Prime Minister. End
summary.



4. (U) USEU Economic Minister Counselor Anne Derse and Trade
Policy Attache Christopher Wilson visited Rome May 27-28 to
preview with the GOI and Embassy staff trade, economic and
environmental issues that will be active during Italy's
upcoming EU presidency. Derse and Wilson, accompanied by
Embassy econ officers, met with officials at the Foreign
Trade Office of the Ministry of Productive Activities, as
well as the Ministries of Environment, Finance, Foreign
Affairs, and Transport. A session with Ambassador Nicholson
and his staff at the U.S. Embassy to the Holy See was a
useful exchange on further engaging the Vatican to play a
constructive role in the continuing debate over the use of
agricultural biotech, particularly in the developing world.
Agricultural Biotech


--------------------------





5. (C) Federico Eichberg, senior advisor to Foreign Trade
Vice Minister Adolfo Urso, openly lamented the continued lack
of a coherent GOI position on agricultural biotech. The
Foreign Trade/Ministry of Productive Activities, along with
the Ministries of Health and Environment, generally shared
U.S. views on biotech products, but anti-biotech Agriculture
Minister Alemanno continued to exert significant influence
within the GOI. Eichberg expressed the hope that the
pro-biotech ministries will gain influence once new
traceability and labeling rules are approved by the European
Parliament, perhaps by November. While noting that the EU
moratorium on biotech approvals (and the GOI,s Amato decree
that banned four varieties of U.S. corn in 2000) is a
separate issue from the implementation of new traceability
and labeling rules, Eichberg was hopeful a mutual resolution
could be realized. Wilson responded that continuing movement
towards resuming the EU approvals process will be helpful as
the WTO process moves forward in the next few months, but he
cautioned against the imposition of additional conditions by
some member states in exchange for lifting the moratorium.



6. (C) Environment Ministry International Affairs Director
General Corrado Clini viewed the U.S. request for


consultations as a positive step in that it will pressure the
EU towards resolution. He also believed the GOI might finally
be pushed towards a unified policy, implying that Alemanno
would no longer dominate the issue within the government. He
views France and Austria as the most intransigent foes of
biotech, and that French opposition is a purely protectionist
policy to keep U.S. imports from harming French agricultural
interests (unlike Italy, where significant public opposition
to GMOs drove the policy of officials like Alemanno). Clini
believed the prospective conciliation process for the
implementation of new traceability and labeling rules has
been made more difficult by the U.S. consultations request.
Massimo Gaiani, of the MFA,s European Integration Bureau,
told us that the GOI awaited the results of the EU
Parliament,s second reading on new traceability and labeling
rules, and is concerned that amendments to the legislation
are extremist and not in line with the EC common position.
He also noted concern that lack of progress in WTO
consultations this summer could encourage the adoption of
such amendments, further complicating the (potential)
conciliation process. Gaiani added that he believes the
European Commission will continue to defend the common
position. Derse responded that the U.S. continued to have
concerns about the EC common position itself, not to mention
some of the more extremist amendments that have been put
forward by the EU Parliament. Gaiani echoed Clini and
Eichberg in noting that pressure on the EU to resolve the
biotech issue, particularly during the course of the Italian
presidency, could spur creation of a common GOI position.



7. (C) Ambassador to the Holy See James Nicholson told Derse
and Wilson that the Vatican was moving closer to U.S. views
on biotech, though he noted that opinions varied among
Vatican officials and local bishops. There is widespread
belief that the EU,s concerns are largely politically based,
rather than motivated by health or environmental concerns.
The Vatican's Pontifical Council had found no reason not to
use biotech foods and, though calling for adequate
precautions, they do appear to be on the right side of the
issue from a scientific standpoint. Ambassador Nicholson
noted an upcoming visit of an African cardinal that could
usefully link economic development in Africa with greater
acceptance of agricultural biotech products.

WTO/Doha Round and Cancun Ministerial


--------------------------





8. (SBU) Eichberg conveyed GOI concern that the September
Cancun ministerial not be overloaded with issues to resolve.
He said the recent positive movements toward CAP reform were
welcomed by the GOI (including Alemanno) and there was hope
that subsequent agricultural market access talks would be
more fruitful. He also thought positive movement on
non-agricultural market access (NAMA) might help the
agricultural talks. Wilson noted that the U.S. viewed CAP
reform as a positive step, though there were significant
market access issues remaining to be resolved. We would miss
the end-May deadline on a modalities paper for NAMA, but the
U.S. was not pessimistic about making further progress in
those talks. Eichberg noted that the GOI was not overly
concerned about deadlines. He was optimistic the 2005
deadline for concluding the round was possible, but we should
not be concerned if it slips some.



9. (SBU) On TRIPS/Medicine (an issue of particular concern to
Vice Minister Urso) Eichberg expressed some confidence that
resolution was attainable, he hoped before Cancun. He
suggested that announcement of such a resolution during the
Cancun meeting would generate positive coverage and dampen
"no-global" sentiment. Wilson agreed that resolution of the
issue before Cancun would be necessary to keep it from
dominating the meeting, and he was hopeful that the G-8
summit would create an environment that would facilitate
resolution.



10. (SBU) Increased protection of geographic indications
within the WTO remains a key GOI concern, and Eichberg said
that the issue will be prominent on the trade agenda during
Italy,s presidency. Eichberg noted that such concern is
based on the notion of providing consumers with greater
knowledge about, and access to, quality products, and on
protecting the many small producers of such products through
a system that would not entail the burdensome costs of


registering and enforcing trademarks. Eichberg told us the
GOI has discussed with the EC a possible strategy of imposing
a limit on the number of GIs for wines and spirits in
exchange for full market access and reciprocity for other
GIs. He also suggested linking GI protection with different
forms of protection, such as trademarks. Italy would also
provide technical assistance to developing countries to
enable them to provide greater protection of GIs. Wilson
cautioned that the U.S. and EU positions on GIs remained far
apart (and Cairns Group members were perhaps even further
from the EU position).

U.S.-EU Bilateral Trade Issues


--------------------------





11. (SBU) In the interest of bringing Transatlantic relations
back on track, the Foreign Ministry,s Gaiani told us the GOI
will work to prevent both the creation of new trade disputes
and the worsening of existing disputes. In addition to
biotech, he pointed to steel and FSC as two areas of
particular concern. Wilson noted that a decision by the WTO
on the U.S. appeal to the earlier WTO decision on the U.S.
steel safeguards, along with the U.S. mid-term review of the
safeguards, would both take place in the fall. He did not
want to assume the outcome in either case, and added that the
U.S. was pleased at the progress on steel capacity talks at
the OECD. On FSC, Gaiani suggested that we keep in close
touch on the progress of remedial legislation in Congress. He
cautioned the EU may have little maneuvering room in the
implementation of retaliatory measures absent clear progress
in Congress.



12. (U) Derse mentioned to Gaiani and Eichberg the U.S.
interest in revitalizing the Transatlantic Business Dialogue.
One impediment was finding leading EU companies willing to
play an active role in the TABD. Gaiani said he has been in
touch with the Italian business confederation Confindustria
about this problem, and the Italian Embassy in Washington was
also working on identifying and encouraging potential
companies.

Environmental Issues


--------------------------





13. (SBU) Clini noted that the Italian Presidency hopes to
introduce "more economics into EU environmental policy". He
added that Italy plans to hold a joint meeting of EU
environment and energy ministers during its presidency. He
also told us a successful COP-9 meeting in Milan is a key GOI
environmental priority during its EU presidency. He noted
the GOI was also very interested in the upcoming Carbon
Sequestration Leadership Forum (he will not attend, but hopes
a deputy from his ministry will be able to do so). He
expressed some doubts about the benefits of carbon
sequestration in Italy, given the dominance of small and
medium enterprises. Derse suggested hydrogen economy as
another area where EU-U.S. cooperation could yield useful
results much faster than if either worked alone. Clini noted
that a debate was reopening within the EU regarding the
extent to which the EU should rely internally on flexible
mechanisms or solely domestic actions. In his view, the
Germans and Swedes favored mainly domestic action, while
others are advocating more flexible mechanisms.



14. (SBU) Clini said the ongoing EU effort on formulating a
new chemicals policy should be jointly managed by the EU
Competitiveness Council and the EU Environmental Council.
Derse said the U.S. would welcome such a development, given
the Competitiveness Council,s attention to economic
concerns. She noted the U.S. was carefully considering the
current EU chemicals proposal and would be submitting
comments to the EU. Clini suggested that the U.S. consider a
strategy to manage the chemicals regulation through the
Italian Presidency. In his view, the Commission should not
only be seeking comments from stakeholders, as it is now
doing, but should also factor them into the final regulation.

Transport Issues


--------------------------





15. (SBU) Emilio Maraini, Senior Advisor to the Minister of
Transport, explained that Italy's top transport priority is
financing infrastructure investment. Much transport


infrastructure in existing EU member states, he said, is
"near collapse". The situation in the new entrants is even
worse.



16. (SBU) There are six key transport areas in which Italy
would like to make progress during its presidency:

(1) Unimpeded circulation of goods and people within the EU.
The primary concerns here are limits imposed by Italy's
neighboring countries (including Austria, Switzerland,
France) which are hurting northern Italy's economic growth.

(2) Sustainable development of transport, including balancing
modes to emphasize cheaper, less polluting transport.

(3) Financing necessary infrastructure investment. Maraini
noted that the Van Miert report on the Trans European Network
concluded that this would require E 500 billion over the next
20 years from the 15 countries of the existing EU, and an
additional E 100 billion to E 200 billion from the new
entrants. Under Growth and Stability Pact constraints, this
can't be done. Options would include: Increasing the EU
share of the payment; introducing user fees; private
participation and cross funding. The GOI is looking at user
fees, combined with interoperable EU toll payment systems.

(4) Transport liberalization, primarily railway and port
services.

(5) Transport safety and security, including air, train,
road, tunnel and maritime safety. Negotiating EU agreements
with the U.S. on a container security initiative and an open
skies aviation agreement are key.

(6) Galileo. Maraini said there are several issues to be
worked out with the U.S. on Galileo, most crucially the
M-code issue. Maraini stressed that this must be resolved
before tenders are issued for the industrial part of Galileo.
"I think a solution will be found. There is no other
option," he offered. Within the EU, Galileo responsibilities
are divided into among different councils - telecom,
transport and research. Thus, he expects that final
decisions on M-Code will have to go to the European Council.
Within Italy, Prime Minister Berlusconi will make the final
call on the Italian position on M-Code. While there are
several ministries involved in Galileo issues within the GOI,
the M-Code falls into the competency of the Italian Space
Agency, which comes under the Ministry of Research. The
Transport ministry is interested in Transport aspects, and in
the jobs created. The ministries of Communications,
Productive Activities and Foreign Affairs also all have roles.

17 (U) This message has been cleared with USEU.
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2003ROME02501 - Classification: CONFIDENTIAL