Identifier
Created
Classification
Origin
04ROME2829
2004-07-21 14:23:00
SECRET
Embassy Rome
Cable title:  

U.S.-ITALY DUAL USE EXPORT CONTROL CONSULTATIONS,

Tags:  ETTC PREL EIND PARM TSPA IT CH IR EXPORT CONTROLS 
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S E C R E T ROME 002829 

SIPDIS


STATE FOR PM/DTC, NP/ECNP, EUR/WE
DOD FOR ISP/SPACE POLICY - SCHWENKE

E.O. 12958: DECL: 07/21/2014
TAGS: ETTC PREL EIND PARM TSPA IT CH IR EXPORT CONTROLS
SUBJECT: U.S.-ITALY DUAL USE EXPORT CONTROL CONSULTATIONS,
JUNE 23-24, 2004

REF: A. ROME 2489

B. 03 ROME 3842

Classified By: Acting Economic Minister Counselor Kathleen Reddy for re
asons 1.5 (b) and (d)

Summary
-------

S E C R E T ROME 002829

SIPDIS


STATE FOR PM/DTC, NP/ECNP, EUR/WE
DOD FOR ISP/SPACE POLICY - SCHWENKE

E.O. 12958: DECL: 07/21/2014
TAGS: ETTC PREL EIND PARM TSPA IT CH IR EXPORT CONTROLS
SUBJECT: U.S.-ITALY DUAL USE EXPORT CONTROL CONSULTATIONS,
JUNE 23-24, 2004

REF: A. ROME 2489

B. 03 ROME 3842

Classified By: Acting Economic Minister Counselor Kathleen Reddy for re
asons 1.5 (b) and (d)

Summary
--------------


1. (S) On June 23, 2004, U.S. and Italian goverment
delegations held consultations on a range o export control
and technology transfer issues, s a follow-up to discussions
held in July 2003. Bth sides appeared satisfied with the
quality of he information exchange. Discussion included the
EU/China arms embargo, sensitive Italian exports t Iran,
Alenia Spazio contacts with China, and th Italian
Cosmo-Skymed remote sensing satellite prject.


2. (S) The Italian delegation emphasized taly's demonstrated
willingness to impede export of concern to Iran; however,
the limited flexiblity in this regard under Italian law
continues o persuade Italy that a multilateral approach to
ontrolling such exports be explored within the Wasenaar
Arrangement. Both delegations emphasized te importance of
effective controls on intangibletransfers of technology,
though the GOI noted th need to strengthen its efforts on
enforcement an compliance of existing Italian law and
regulatins. The U.S. briefed Italy on our policy regardin
the licensing of synthetic aperture radar data nd imagery,
while Italy countered with details o its Cosmo Skymed
satellite program, which is intnded primarily for
military/civilian government se, but will also provide
coarser resolution imagery for commercial use.


3. (S) Top executives from Italian firm Alenia Spazio (AS)
joined the government delegation for a discussion of current
projects of interest to the company in China, also
underscoring their frustration at not obtaining more
sub-contracting work with NASA. On June 24, in visits to four
Italian firms participating in the Joint Strike Fighter
program, the U.S. delegation emphasized the importance of
effective export controls and were briefed on each company's

operations, including their measures to protect sensitive
technologies.

Participants
--------------


4. (U) U.S.: Robert Maggi, Managing Director, Defense Trade
Controls (PM/DTC); Ann Ganzer, Director, Office of Defense
Trade Controls Policy (PM/ DTCP); J. Christian Kessler,
Director, Office of Export Controls and Conventional Arms
Nonproliferation Policy (NP/NPC/ECNP); Jim Schwenke,
International Security Policy, OSD; Scott Kilner,
Minister-Counselor for Economic Affairs, U.S. Embassy Rome;
John Finkbeiner, Economic Officer, U.S. Embassy Rome; Todd
Ebitz, Political-Military Officer, U.S. Embassy Rome;
Theodore Siggins, Assistant Customs Attache, U.S. Embassy
Rome.


5. (U) Italy: Carlo Tripepi, Nonproliferation Coordinator,
Directorate General for Economic and Financial Cooperation
(DGCE),MFA; Diego Ungaro, Director, Office of Defense
Industry and Sensitive Technology Transfers, MFA; Federica
Ferrari Bravo, Office of Persian Gulf Affairs, MFA; Gianluca
Grandi, Office of East Asian Affairs, MFA; Jacobo Martino,
Office of Science Affairs, MFA; Massimo Goti, Director
General for Production Development, Ministry of Productive
Activities (MPA); Aldo Doria, Director, Office of High
Technology Products, MPA; Alfredo Cuzzoni, Expert on the
Interministerial Consultative Committee on Dual-Use Export
Controls, MPA: Giulio De Martino, Expert on the
Interministerial Consultative Committee on Dual-Use Export
Controls, MPA; Alfonso Spatola, Consultant, MPA; Giuseppe
Bernardis, Director, Office of Research and Devlopment, MOD;
Roberto Leonardi, Director, Cosmo-Skymed Program Office, MOD;
Carlo Magrassi, Deputy Director, Office of Armament Policy,
MOD; Renato Genovesi, Office of Information and Security,
Defense General Staff; Luca Fontana, Office of Information
and Security, Defense General Staff; Arnaldo Capuzzi, Italian
Space Agency (ASI); Emilio Delfini, Office for Coordination


of Armament Production, Presidency of the Council of
Ministers.


6. (U) Alenia Spazio: Maurizio Tucci, CEO; Antonino Simeone,
Deputy General Director; Paolo Piantella, Engineer.


7. (SBU) In opening the consultations, Tripepi and Maggi
noted longstanding U.S.-Italy cooperation on security issues,
industrial development, and the proper use and transfer of
technology. Since the bilateral consultations in July 2003
(see ref B),GOI and USG officials had met on several
occasions to continue the dialogue on export controls. This
meeting reflected both governments' commitment to cooperate
on creating strong export controls that nevertheless provided
our respective companies with the ability to market
effectively their high technology products. The
consultations initiated with U.S. views on recent EU efforts
that could lift the EU arms embargo on China (discussion
reported in ref A).

Sensitive Italian Exports to Iran
--------------


8. (S) Kessler initiated the discussion on the export of fast
boats and related items to Iran by noting USG appreciation
for recent steps the GOI had taken to forestall delivery of a
boat that had previously been purchased by an Iranian entity.
Kessler observed that Iran continued to pursue development of
a fleet of fast patrol boats for use in the Persian Gulf.
However, Iran was now concentrating on the acquisition abroad
of individual boat components rather than fully finished
boats, as had been the case with the boats Iran imported from
the Italian firm FB Design. The U.S. would continue to raise
its concerns about exports that improved Iran's naval
capabilities, with Italy as well as other countries exporting
any items that might augment those capabilities.


9. (S) Tripepi noted that the legal procedure used to inhibit
the most recent patrol boat shipment to Iran had been "not
very elegant," in that Italy essentially had to improvise an
ad hoc procedure to stop the shipment. Nevertheless, this
action demonstrated Italy's cautious approach to trade with
Iran. Tripepi added that the GOI interagency Consultative
Committee on Dual-Use Exports regularly considers a large
number of licenses for dual-use exports to Iran. The
committee uses Italian catch-all regulations to impede such
exports, provided they meet the Italian legal requirement
that the export in question could contribute to WMD
development. Tripepi pointed to the GOI's recent denial of
an export license for a small shipment of de-greasing
chemicals destined for the Iranian DIO as evidence of Italy's
vigilance on this issue.


10. (S) The MPA's Aldo Doria reminded participants that
Italian law forbids embargo lists aimed at a specific country
that is not the subject of a multilateral embargo, though EU
regulations do allow individual member states to make certain
categories of exports subject to licensing restrictions. He
added that the GOI was studying the legal means by which the
UK had imposed export restrictions on Iran and Iraq in 2002,
though he surmised that those restrictions could not
technically have been country-specific in order to remain
within EU rules. Tripepi said that Italy's limited ability to
use catch-all provisions, as well as the various
nationalities of the firms exporting to Iran, continued to
suggest the need for the Wassenaar Agreement to play a
stronger role in coordinating an approach to the problem.
Kessler responded that during its 2003 Plenary, the Wassenaar
Agreement had agreed to a catch-all provision for dual-use
items destined for military end-uses/end-users in countries
subject to embargoes. However, Wassenaar -- like national
governments -- had found the matter of preventing exports of
essentially civil items for military applications of concern
to be a difficult topic, one perhaps best addressed
case-by-case or on a national basis.

Alenia Spazio and China
--------------


11. (S) Alenia Spazio (AS) CEO Maurizio Tucci and other
senior AS officials joined the government delegations for an


update on the company's involvement with the PRC. Tucci
stated that since our bilateral consultations in July 2003,
AS has not pushed strongly to increase its business ties with
the Chinese space sector, though the Chinese continued to
encourage closer ties with the company. AS has allowed
Chinese scientists to visit its facilities in Italy (Tucci
emphasized that the company's security controls prevent such
visitors from seeing sensitive items and equipment),and
Tucci himself accompanied an EU delegation to China in March.
These contacts have increased doubts within AS of its ability
to do meaningful business with the Chinese. Tucci said the
Chinese appear to be making great strides in developing space
technologies. China now looks to firms like Alenia only for
the most advanced technology, including technology for
developing data relay satellites, synthetic aperture radar
satellites, and other optical-related technologies -- but
Tucci said AS has told the Chinese that the company is very
limited in its abilities to cooperate on such technologies.
The Chinese, however, express little interest in the
less-advanced technology that AS was willing to supply them,
Tucci added.


12. (S) In the course of the discussion, Tucci specifically
mentioned that AS was considering a Chinese proposal that
would involve the provision of payload equipment hardware for
China's data relay satellite program, a contract worth
approximately USD 6 million. Tucci added that the equipment
did not/not involve the two areas of DRS work that the USG
had indicated would cause us concern (regarding optical
cross-linking capabilities and improvements to China's DFH-3
satellite bus).


13. (S) The overall thrust of Tucci's message was that AS
increasingly viewed the Chinese market as a dead end -- China
doesn't want the less advanced technology that AS is willing
to supply, and AS refuses to provide China with more advanced
technology, in part due to U.S. concerns. Tucci made clear
that, with the Chinese market looking even more unfavorable
to the company than last year, and with AS committed to
working within the parameters of U.S. concerns when it comes
to business in China, the company now looked more than ever
for further business opportunities with the U.S. He
mentioned a pre-feasibility study being worked with Boeing on
a crew escape vehicle for the NASA Mars project, but said the
company was concerned about restrictions on non-U.S. company
work on this and similar projects of interest to AS. Maggi
and Ganzer promised to follow up with NASA regarding AS's
concerns on the Mars project, and also said they would be
willing to inquire about other specific contracts the company
was pursuing. The MOD's Magrassi said that AS's concerns
epitomize the difficulties encountered by Italian high-tech
firms in winning contracts for U.S. projects -- Italian firms
want to work with the U.S., but need to see results for their
efforts. Maggi said the U.S. understood well the GOI's
concerns, though he noted that non-U.S. companies around the
world sometimes inaccurately perceive the reasons they may
lose out on a contract.

Intangible Transfers of Technology (ITT)
--------------


14. (SBU) Maggi suggested that the Joint Strike Fighter
(JSF) program provided a good case study for discussing ITT,
noting that the USG discusses the importance of controlling
ITT with all companies participating in JSF, U.S. as well as
non-U.S. companies. The MOD's Bernardis agreed that JSF was
an accurate reference point, noting that Alenia Aeronautica
engineers working at Lockheed Martin facilities in Texas had
specifically complained to the GOI that their engineers were
being denied access to certain technologies that had been
cleared for release to Italy, and said some complained of
doing only photocopying and other menial tasks not
commensurate with their skills. The MFA's Ungaro said the
GOI believed Lockheed Martin was interpreting export license
restrictions too narrowly, reportedly at the behest of DOD.
Maggi acknowledged that U.S. firms sometimes create
unwarranted obstacles to non-U.S. partners, and asked the GOI
to provide additional information so that his office could
further investigate, but cautioned that Alenia Spazio is not
the GOI, and technologies authorized for release to the
Government of Italy are not automatically eligible for


release to Italian companies.


15. (SBU) Violations of ITT controls are difficult to detect,
Maggi noted, adding that the USG repeatedly emphasizes these
controls in its dialogue with U.S. firms, and levies a
significant number of fines in cases where unlicensed ITT is
proven. The USG is devoting increased resources to
compliance, including the addition of computer experts who
can more readily detect ITT. The U.S. is focusing
increasingly on the marking of electronic data, and is
hopeful that technology to create permanent marking of data
will be forthcoming. Maggi noted that German government
officials recently had told him that German customs
enforcement officers perform periodic in-depth auditing of
German firms to ensure compliance with export controls, and
asked if the GOI performs similar audits. Tripepi said the
Italian Guardia di Finanza (customs police) occasionally
inspects companies, though he said export control officials
rely more on Italian intelligence officials for such
information. Fines against companies are levied by regional
prosecutors in cases brought by the Guardia di Finanza.
Ungaro addressed U.S. concerns regarding Italy's ability to
control ITT by noting that the GOI needs to strengthen its
efforts on outreach, enforcement and compliance -- existing
Italian laws and regulations already require the licensing of
all ITT, both dual-use and munitions. The involvement of
regional prosecutors and customs police, and the lack of
inspectors within the MFA (responsible for munitions
licenses) and MPA (responsible for dual-use licenses),
complicates compliance efforts in Italy, added Ungaro.


16. (SBU) Maggi noted that the U.S. was interested in
furthering its dialogue with the GOI regarding both
countries' ITT controls, to include the completion by the MFA
and the Department of State as early as possible of the
matrix on Italian and U.S. export control regulations. Maggi
noted the progress on the matrix since last summer, and
suggested the MFA and State Department hold a DVC to finish
it, perhaps before the end of the summer. The Italian side
agreed to work towards timely completion of the matrix.
Kessler noted that the protection of ITT is being discussed
on a multilateral basis within the Wassenaar Agreement
framework, and that there may be opportunity for Italy and
the U.S. to work together in advancing that effort.

Cosmo Skymed
--------------


17. (C) Kessler opened the session on Italy's Cosmo Skymed
satellite program by noting strong U.S. interest in the
development of such remote sensing capabilities, and our wish
to increase information sharing among those countries working
in this area. Kessler emphasized the fundamental differences
between synthetic aperture radar (SAR) systems (such as those
used in Cosmo Skymed) and electro-optical systems, both in
the way each system functions as well as the nature of the
data produced. Bilateral discussions on remote sensing with
France and with Canada had revealed similar perspectives, but
varying approaches, regarding the licensing for commercial
use of satellite imagery and data. The U.S. had recently
begun discussions with Germany, and now hoped to start a
dialogue with Italy as well. Kessler provided the GOI with a
paper outlining U.S. rationale for licensing commercial SAR
remote sensing space systems.


18. (C) The MOD's Leonardi, supported by ASI's Capuzzi,
summarized certain aspects of the Cosmo Skymed program, which
he noted includes the MOD as its priority customer, with GOI
civilian users also viewed as likely customers (though
civilian agencies would not have access to the higher
resolution imagery or that collected for national
reconnaissance purposes). Though it recognizes potential
commercial uses for remote sensing data, the GOI is not
presently focused on commercialization of Cosmo Skymed. The
program is being developed in conjunction with France
(primarily the French MOD),but is fully financed by the GOI.
The GOI also is interested in expanding cooperation with
Argentina. ASI has the lead role for the GOI, working closely
with MOD. Leonardi said the first of four satellite launches
is scheduled for the first half of 2006, with additional
launches following every eight months. He noted that the


project's ability to secure continued GOI funding has been
difficult, adding that 80 percent of the Cosmo Skymed budget
is provided through the Italian Research Ministry (which
oversees the Italian Space Agency - ASI),while the Italian
MOD finances the remaining 20 percent.

Company Visits
--------------


19. (SBU) Maggi and Ganzer followed the bilateral government
discussions with a visit on June 24 to four key Italian
defense firms involved in the Joint Strike Fighter program:
Marconi, Galileo, Datamat, and Elettronica. Those visits
were preceded by a meeting at MOD, where Major General
Bernardis (who attended the June 23 discussions) and Lt.
General Carmine Pollice provided background on the four
companies and their involvement in the JSF program, as well
as recent Italian parliamentary queries regarding JSF.
(Pollice also inquired about recent congressional attempts to
strengthen U.S. Buy America provisions, as well as the
current status of the pending U.S. tanker aircraft contract.)
At each stop Maggi explained U.S. policy on trade controls
and the role of State's Defense Trade Controls office in
implementing those controls. Representatives from all four
firms briefed Maggi on their cutting-edge technologies, as
well as their measures to protect sensitive information. All
asked him to return for more extensive discussions and for
visits to their production facilities.

Comment
--------------


20. (SBU) Both the U.S. and the Italian delegations welcomed
the continued open exchange of information on dual-use export
controls, as initiated in July 2003 and continued since then
through several meetings involving relevant USG and GOI
officials. Italy continues to view this dialogue as a means
to further increase commercial cooperation between U.S. and
Italian firms. The U.S. delegation emphasized that increased
cooperation was contingent on continued GOI efforts to
strengthen controls, in particular the enforcement and
compliance of ITT controls. Given the large amount of
information exchanged in the past year, we believe that our
continued dialogue could take place in smaller settings on a
more ad hoc basis, including through the use of DVC when
possible.


21. (S) Regarding discussion of specific issues, Alenia
Spazio appears to remain cognizant of the parameters of
future cooperation with China, as agreed in earlier
U.S.-Italy diplomatic exchanges. The company clearly hopes
that increased contracts with the U.S. will be the result of
such cooperation. For business reasons, however, we should
expect AS to maintain its contacts with Chinese space
officials. Recent actions in the Iran boats case demonstrate
the flexibility that the GOI can find under certain
circumstances, though our interlocutors continue to emphasize
the legal constraints that inhibit a more straightforward
approach to halting worrisome shipments to countries of
concern. We can expect the GOI to continue to seek a
multilateral approach to the issue through the Wassenaar
Agreement. On Cosmo Skymed, the GOI appears to be open to
greater information sharing, and welcomed the example of the
U.S.'s considerable efforts to craft an effective security
policy that also provides the opportunity for considerable
commercialization of SAR data and imagery.


22. (U) This cable was cleared by Washington participants in
the delegation.

Visit Rome's Classified Website:
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2004ROME02829 - Classification: SECRET