UPDATE ON SALE OF FAST BOATS AND BOAT ENGINES TO

S E C R E T ROME 000166

SIPDIS


NOFORN

STATE FOR EUR/WE, EUR/PRA, NP/ECNP, INR/SPM, NEA/NGA,
PM/RSAT, PM/DTCP

E.O. 12958: DECL: 01/15/2014
TAGS: ETTC EIND PARM PREL IT IR EXPORT CONTROLS
SUBJECT: UPDATE ON SALE OF FAST BOATS AND BOAT ENGINES TO
IRAN

REF: A. ROME 59

B. 03 ROME 5680

C. 03 ROME 5552

D. 03 STATE 338477 AND PREVIOUS

Classified By: Economic Minister-Counselor Scott Kilner for reasons 1.5
(a),(b) and 1.6x6


1. (S) Summary. Italian Ministry of Productive Activities
(MPA) officials outlined to us on January 14 a three-pronged
strategy for dealing with the export of fast boats and
related items to Iran. In the short term the MPA will inquire
with Italian customs authorities about the status of the
imminent shipment of one patrol boat to Iran, with an eye
towards delaying such a shipment. In the medium term, the
MPA continues to pursue the issuance of a decree that would
require GOI approval for future shipments of sensitive items
to geographic regions of concern. Looking down the road, our
MPA contacts suggested that multilateral discussion of this
type of export could take place in the context of the
Wassenaar Arrangement. Embassy believes the fast boats case
should be a prime subject for the next round of bilateral
dual-use export control discussions. End summary.


2. (S) On January 14 Ecmin and econoffs met with Gabriele
Checchia, Diplomatic Advisor to Minister of Productive
Activities (Industry) Antonio Marzano, and Amedeo Teti,
Director General for Commercial Agreements in the Ministry's
Foreign Trade Unit, to further discuss the export to Iran of
FB Design fast boats and Isotta Fraschini Motori (IFM)
engines. Checchia told us he called the meeting to underline
the Ministry's ongoing efforts to devise and implement a
legal solution that would meet U.S. concerns while taking
into account the economic impact of any limits on exports
from the Italian boat industry. He said the Ministry
continued to work on drafting a decree that would require
that future shipments to a geographic region of concern would
be subject to the GOI's approval. For political reasons, the
decree would likely not name any particular country. Any
decision to stop an export would take into account both
political and economic factors. Checchia stressed that the
decree would need to be vetted by all interested ministries
before being issued by Minister Marzano. He suggested that a
draft could be ready by the end of January.


3. (S) Ecmin responded that the U.S. would greatly welcome
the creation of a legal means for the GOI to impede exports
of sensitive technology to countries like Iran. However, we
also remained immediately concerned about the imminent
shipment of the third fast boat (of the "final four") to
Iran. Ecmin renewed our request that Italy take concrete
action to impede that shipment, as well as the eventual
delivery of a fourth and last vessel. Teti agreed to contact
Italian customs authorities after the meeting to ascertain
the status of the third boat and to explore any possible
means to delay its export. He added that he understood that
the fourth boat was scheduled for delivery in April.


4. (S) Teti and Checchia both emphasized that the engines
being supplied by IFM to Iran for use with the fast boats
were medium-speed models that were not ideally suited for
"hit-and-run" attacks on other vessels. Ecmin responded that
the U.S. remained strongly concerned about asymmetric threats
to U.S. military forces in the Persian Gulf, and would
welcome technical specifications for the engines in question,
as well as any further technical details on the fast boats.
Teti promised to ask IFM (which is a subsidiary of the
GOI-controlled shipbuilding conglomerate Fincantieri) for
such information. He noted that IFM had a three-year
contract to supply engines to Iran, and that around 60
percent of the company's current revenues stem from that
contract. Teti further stated that six FB Design boat molds
had already been supplied to Iran, thus giving Iran an
indigenous capability to manufacture boats. In Teti's view,
the future export of boat engines was therefore becoming a
more salient issue than the export of the boats themselves.



5. (S) Ecmin predicted that, while the U.S. would continue to
urge the GOI to impede shipments of both boats and boat
engines to Iran, we would also seek consultations with the
GOI in bilateral and/or multilateral fora in order to
forestall similar problems in the future. He suggested that
our experience with the Iran boats case should be discussed
at the next round of U.S.-Italy discussions on dual-use
export controls. Teti offered the Wassenaar Arrangement as
the most appropriate multilateral forum to discuss this type
of case, and added that inclusion of such boats on a
multilateral export control list could be a key step in
impeding such exports in the future. Comment: We are not
certain that Teti has fully consulted with MFA officials
regarding the possible discussion of these exports under the
auspices of the Wassenaar Arrangement. End Comment.


6. (S) Late note. Diplomatic Advisor Checchia called January
15 to clarify the name of the vessel reportedly transporting
the third fast boat from Venice harbor to Iran o/a January

15. He reported that the GOI (presumably customs
authorities) was searching for the vessel at that moment. He
would not specify what action Italian authorities would take
if the boat were located. End note.


7. (S) Comment. We will continue to press Italian authorities
to impede the export of the two remaining fast boats, and to
move forward with a ministerial decree. Regardless of what
these efforts produce, we recommend that Washington agencies
carefully consider Teti's proposal to address this problem
within the Wassenaar Arrangement. Such an initiative, along
with unilateral steps Italy might take to tighten its
national controls, should be a top agenda item for bilateral
talks on dual-use controls planned for the first quarter of
this year. End comment.
SKODON


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2004ROME00166 - Classification: SECRET