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 NNNN 2004ROME00166 - Classification: SECRET