MFA ROUND-UP ON BILATERAL ECONOMIC ISSUES

C O N F I D E N T I A L SECTION 01 OF 02 PARIS 000598

SIPDIS

STATE FOR E, EB, EUR/ERA AND EUR/WE
STATE ALSO FOR OES AND STAS (ATKINSON)
STATE PASS USTR (NOVELLI)

E.O. 12958: DECL: 01/31/2015
TAGS: ECON ETRD KIPR EAID EFIN TRGY PREL FR
SUBJECT: MFA ROUND-UP ON BILATERAL ECONOMIC ISSUES

Classified By: Econ Minister-Counselor Thomas White for reasons 1.5 (b)
and (d).


1. (C) SUMMARY: Senior economic policy officials at the MFA
have noted their relief at the three-month "cease fire" over
the Airbus/Boeing case but explain that contrary to the U.S.
views, they believe the soon to be developed A350 would be
covered by the 1992 aircraft agreement. They explained that
France is not embarking on a new policy of promoting national
champions and that President Chirac will continue to press
the global tax idea at Davos and in other fora. Our contacts
report no progress in talks with Japan on ITER, but note that
the EU will not wait interminably before beginning
construction at the Cardarache site. End Summary.


2. (C) On 25 January Econ Minister-Counselor and Econ Chief
called on MFA Economic Director (U/S equivalent) Alain Le Roy
and his deputy, Jean-Christophe Chouvet, to review current
bilateral economic policy issues. Econ M/C started by asking
Leroy about his reaction to the recent U.S.-EU agreement to
take no further steps toward litigation in the large
commercial aircraft (LCA) area. He underlined for Le Roy
that this was an issue that remained extremely important for
the USG and added that the key issue will be how the launch
of the Airbus A350 is handled. Le Roy said that he
understood that the 1992 LCA agreement covered the A350 and
that therefore previous practices (loans, launch aid) would
be allowed. Econ M/C noted that U.S. lawyers had a different
interpretation. Le Roy asked if Boeing was prepared to
renounce "subsidies" that it received from the Japanese
government. Econ M/C said that would be an issue to be
discussed between EU and Japanese officials. He closed by
noting that both Boeing and Airbus were mature and successful
firms that should be allowed to compete in the future without
subsidies. The WTO subsidies code was a good place to start
in coming to definitions of what constituted subsidies.


3. (SBU) Referring to the recent Airbus A380 rollout, Econ
M/C noted that it was interesting that former Airbus EADS CEO
Philippe Camus was not present at the ceremony. Le Roy only
noted that, "Well, his time has passed."


4. (C) Econ M/C then recalled for Le Roy President Chirac's
New Year's speech in which Chirac promised to create a new
agency to fund research and development efforts to "create
the new Airbus and Ariane of the 21st century." Econ M/C
noted that the USG hoped that this did not signal a new
strategy of promoting national champions. Any restrictions
on which countries could invest or participate in the
projects would be an unfortunate development, particularly if
it affected reasonable merger and acquisition activities. He
cited the 2003 Aventis case (in which PM Raffarin determined
that pharmaceutical firm Sanofi was of "strategic" importance
to France and could thus not be bought by Swiss giant
Aventis) as a troubling example of what could cause concern
in foreign capitals. Le Roy replied that Chirac's intent was
"much more voluntary" and that there was no intention to
exclude anybody. He said he really did not understand how
Chirac's proposal could be construed as potentially
advocating a national champions strategy. He added, though,
that clearly, "Europe" needed to maintain "its capacity in
certain fields."


5. (C) Econ M/C asked whether there had been any recent
progress with the Japanese on ITER (the International
Thermonuclear Experimental Reactor project). Not
particularly, Le Roy replied. He said that the GOF believed
that the U.S. was the key player in the ITER discussions and
restated the GOF position that "most of the scientific
community" supports the French site of Cardarache for the
facility. He asked if the U.S. would support the Cardarache
location if the EU and Japan came to an agreement. Econ M/C
responded that the USG was looking for a consensus and that
once there was one, the U.S. would look carefully at the
proposal. Le Roy added that there was "some pressure" to get
the project in Cardarache started. While the EU was not
ready to begin its own project on the site at this time, they
were not prepared to wait forever. While the EU would prefer
to proceed with all six parties on board, he said, they were
prepared to move forward without some of the others if
necessary.


6. (C) On FSC, Econ M/C reminded Le Roy that both the
Administration and the U.S. Congress had worked hard to come
up with a legislative package that would address the WTO
case's concerns and that difficult political decisions were
made. He explained that the EU's decision to re-impose
sanctions retroactively and automatically should the WTO
decide the U.S. measures were insufficient was not well
received in Washington. With Congressional consideration of
fast-track authority scheduled this summer, it is unwise to
ignore Congressional trade views. Le Roy took those points
on board.


7. (C) Turning to Davos, Le Roy noted that President Chirac
would be appearing in Davos and would speak on the GOF
"global tax" proposal as a way to fund development
initiatives. He said that Chirac would propose that a tax be
levied on specific international transactions such as
international airline ticket sales. Le Roy said he hoped
that a new suggestion that nations be allowed to "opt out" of
the proposed tax plan would make the proposal more attractive
to the U.S. Econ M/C informed Le Roy that the idea was not a
popular one in the USG because it raised some fundamental
questions about how such a tax could be administered and what
its impact on economic growth would be.


8. (C) Econ Chief also briefed Le Roy on a proposed OECD
study on anti-piracy and anti-counterfeiting. He explained
that we had hoped to work closely with the GOF on anti-piracy
measures and that a good place to start would be a study on
the subject. Econ Chief continued by noting that the USG was
prepared to pay for a significant amount of the study under
certain conditions. Unfortunately, he added, the French
delegation was insisting that the study cover digital piracy
in its first stage and would not agree to support any study
without this provision. Econ Chief added that the USG may be
willing to consider a study in that area at a future date,
but could not support it now. With a plurality of OECD
members supporting a study without the digital piracy
component, Econ Chief opined that it would be a shame to miss
this opportunity to begin to tackle a problem of great
importance to both the U.S. and France. He said he hoped
that France would reconsider its all-or-nothing approach. Le
Roy said he would look into the issue.
Leach