ITALY,S PASSIVE APPROACH TO TRADE POLICY

C O N F I D E N T I A L ROME 001623

SIPDIS


STATE PASS USTR
STATE PASS USDA FOR FAA/BLEGGI
USDOC FOR 4212/ITA/MAC/OEURA/CPD/DDEFALCO
GENEVA FOR USTR

E.O. 12958: DECL: 05/03/2015
TAGS: ETRD EAGR EAIR PREL IT EUN
SUBJECT: ITALY,S PASSIVE APPROACH TO TRADE POLICY


Classified By: Economic Minister-Counselor Scott Kilner for reasons 1.4
(b) and (d)


1. (C) Summary. Italy defers to other EU member states,
especially France and Germany, in setting the direction of EU
trade policy, despite the size of the Italian economy and the
importance of trade to the country's prosperity. Italian
trade officials generally support U.S. views on many issues,
and have been a voice for moderation on most of the U.S.-EU
trade disputes in recent years. Nevertheless, the GOI has
rarely been a strong advocate with other EU member states,
even on issues of particular interest to Italy, with the
exception of expanding WTO protection of geographic
indicators and, more recently, efforts to counter Chinese
competition to Italy's textile industry. On perhaps the most
contentious current bilateral trade dispute, large commercial
aircraft subsidies, the GOI has taken a characteristically
low-keyed approach, even though the Italian aerospace firm
Alenia Aeronautica is a major partner in the Boeing 787
project.


2. (C) The passivity of trade officials has given
Agriculture Minister Alemanno the ability to drive GOI policy
on agricultural biotechnology, despite the pro-GMO tendencies
of other ministries. The Chinese threat to Italy,s textile
and footwear industries recently has invigorated senior GOI
trade officials as have few other issues in recent years,
resulting in the European Commission's taking action in favor
of Italy and other major textile producers despite the
reservations of some member states. However, we do not
believe this recent activism presages a more assertive
Italian trade policy generally. For the most part, we
anticipate continued Italian reluctance to take positions
that are out-of-step with the Commission and other EU member
states. End summary.


3. (C) Despite the Italian economy,s heavy reliance on
foreign trade, trade officials in Rome tend to react
passively, if at all, on most issues, even those that
threaten Italy's national prosperity. Such meekness is
somewhat surprising given the relative youthfulness and vigor
that have characterized the top officials overseeing Italian
foreign trade policy since Silvio Berlusconi took office in

2001. Director General for Commercial Agreements Amedeo Teti
(essentially the "assistant secretary" responsible for
international trade) replaced a bureaucrat decades older in
2002, and has extensive trade experience both in Italy and
Geneva (he is Italy's principal representative on the
European Commission's 133 Committee on trade). Our other
direct contacts in the ministry include both veteran
bureaucrats with extensive experience and young officials who
are well versed on current issues.


4. (C) Vice Minister of Productive Activities (MPA) Adolfo
Urso, essentially the GOI,s trade minister, is an
accomplished politician, a leading member of the National
Alliance (one of the two larger parties in the governing
coalition),and a protege of Foreign Minister/Deputy Prime
Minister Gianfranco Fini (who is widely viewed as a possible
successor to Berlusconi in a future center-right government).
Urso came to his position within the most stable government
Italy had seen in half a century (notwithstanding the
political turmoil of recent weeks, resulting in a new
Berlusconi-led center-right government),which could have
further encouraged him and his staff to take a proactive
approach on foreign trade issues. Yet in the nearly four
years they have guided Italy,s trade policy, Urso and his
staff have shown limited inclination, with a few exceptions,
to persuade other EU member states to strongly advocate
positions of particular interest to Italy.


5. (C) Some of the inertia of foreign trade officials may
stem from the incorporation in 2001 of the Ministry of
Foreign Trade within the Ministry of Industry (which was
renamed the Ministry of Productive Activities, or MPA). This
reorganization was legislated by the outgoing center-left
government and took effect just as Berlusconi's center-right
government entered office. The downgraded "vice ministry"
continues to occupy the same building on the outskirts of
Rome, many miles from the MPA's central Rome location. Even
after five years, the building still displays a prominent
"Ministry of Foreign Trade" sign (in Italian),indicative of
the two ministries' continued lack of integration. Though the
Minister of Productive Activities has nominal responsibility

for foreign trade issues, in practice the vice minister
frequently acts independently (though not in every case,
which can confuse the lines of authority for Foreign Trade
bureaucrats). We are watching with interest whether the new
Minister of Productive Activities, Claudio Scajola, widely
viewed as more politically connected and demanding than his
predecessor, will have more success at integrating the two
ministries.

Pro-U.S. Tendencies, But Limited Support
--------------


6. (C) MPA/Foreign Trade,s passive tendencies can be
particularly frustrating, given the ministry,s general
alignment with the United States on many trade issues,
including some of the most high-profile recent disputes. For
example, ministry contacts, including Urso, have long told us
that the U.S.-EU dispute over the U.S. foreign sales
corporation tax provisions (FSC) is a distraction best
resolved as quickly as possible. Nevertheless, in the run-up
to the European Commission decision to impose retaliatory
tariffs, and more recently when the EC asked the WTO to
review recent U.S. tax legislation that grandfathers certain
provisions of the abolished system, the GOI did not take any
noticeable steps to temper EC actions.


7. (C) Sandro Fanella, who directs the Foreign Trade office
that oversees both WTO issues and bilateral trade relations
with the U.S. (and regularly attends the EC 133 Committee
meetings as Teti's deputy),told us April 13 that the
Commission,s approval of retaliatory tariffs provided
political cover, but he predicted the Commission would
decline to implement them if the WTO rules against the U.S.
Though Fanella,s long experience would persuade us not to
bet against him, his wait-and-see attitude typifies the Vice
Ministry,s passivity on an issue in which we have repeatedly
asked for greater GOI support.


8. (C) Vice Minister Urso,s pro-U.S. tendencies also
occasionally veer into surreal, or at least impractical,
territory. A particularly striking example occurred in May
2003, when Ecmin raised with Urso the U.S. decision to
initiate a WTO case against the EU over its moratorium on
agricultural biotech approvals. Urso responded by advancing
his own complicated idea -- that the range of U.S.-EU trade
disputes (steel, FSC, biotech, geographical indicators, and
even our competing WTO agricultural proposals) should be
linked to facilitate their simultaneous resolution. He
suggested that each issue could be negotiated separately but
in parallel, with the clear understanding that tradeoffs
would be necessary. Though we countered that the U.S.
believed that each issue needed to be resolved separately, on
its own merits, Urso claimed that he would discuss his idea
of a "grand bargain" with the Prime Minister and even with
WTO Director General Supachai and then-European Trade
Commissioner Lamy. We suspect, however, that Urso never
advanced this proposal any further than our meeting. His
often unrealistic approach to resolution of trade issues
certainly makes us wonder how effective an advocate he has
been for Italian trade interests in Brussels and in Geneva.


9. (C) Until just recently, protection of geographic
indications (GIs) has been the only trade issue over the last
few years that Urso and his staff have pushed aggressively
and consistently. Italy is a driving force behind EU efforts
to extend WTO protection of GIs beyond wine and spirits. Our
efforts to convince the GOI that GI protection is an issue
for the TRIPS Council, and that our system of trademarks is a
more effective and practical approach, fall on deaf ears.
During the 2003 WTO Ministerial in Cancun, the Italian
delegates panicked that the U.S. and the EU were seeking a
common agreement on several issues that reportedly would have
sacrificed the EU,s position on enhanced GI protection.
Italy,s anxiety was so high that senior officials in the
Prime Minister,s office contacted the White House asking
that the U.S. back down from our alleged demands that the EU
give in on GI protection. In the end, the breakdown of the
ministerial prevented GIs from being addressed. While we
assume the GOI lobbied strongly with the Commission against
any concessions on GI protection, it is telling that
top-level Italian government officials in this instance did
not believe Italy had sufficient influence with the
Commission to derail such a concession, and thus felt obliged
to contact the U.S. directly.


10. (C) The GOI,s actions in Cancun also illustrate more
broadly Italy,s limited influence on European Commission
positions regarding the current round of WTO negotiations.
Other than GI protection, Italian trade officials have
repeatedly indicated to us that they generally are content to
allow the Commission to drive positions, which allows other
EU member states to exert greater influence (such as France
on agricultural talks, and Germany on non-agricultural market
access negotiations). Despite statements by our foreign trade
contacts in early 2003 that Italy planned to exert more
influence on EU trade interests during the course of its EU
presidency in the second half of 2003, we never detected any
significant increase in GOI activism.

Boeing vs. Airbus: Italy,s Unique Position
--------------


11. (C) Italy has much at stake in the high-profile dispute
over large commercial aircraft (LCA) subsidies. Alenia
Aeronautica, a subsidiary of Italian defense conglomerate
Finmeccanica (in which the GOI holds a 32 percent stake),is
a leading partner in Boeing,s 787 Dreamliner program.
Alenia's joint venture with the U.S. firm Vought Aircraft
Industry will produce 60 percent of the plane,s fuselage
(thus producing a total of about 26 percent of the entire
plane). Italy is not part of the Airbus consortium, although
Alenia is a subcontractor to produce about four percent of
the fuselage for the A380 aircraft, and has participated in
previous Airbus projects as well. Alenia Aeronautica CEO
Giovanni Bertolone told econoff April 15 that the company is
concerned about the current U.S.-EU stalemate on negotiating
a new subsidies agreement. He is nonetheless optimistic about
the success of the 787 project, noting that Boeing has
received over 200 orders. He said Airbus cannot yet count on
the A380 breaking even; given its huge investment costs, it
will need to sell more than twice its confirmed orders so
far. Bertolone also expressed doubts about the viability of
the Airbus A350 program, even with subsidies, since its
development lags several years behind that of its perceived
competitor, the 787.


12. (C) Our MPA/Foreign Trade contacts also call for the LCA
subsidies dispute to be resolved quickly. However, they have
admitted to us that the GOI is not pressing the European
Commission to reach an agreement with the U.S. Our recent
conversations indicate they do not believe they can
effectively influence the four Airbus countries (UK, Germany,
France, and Spain),so they have apparently decided to stay
mostly quiet. Over lunch with Ecmin on April 13, Foreign
Trade,s Director General Teti expressed surprise at our
suggestion that Italy should play a more assertive role
within the EU towards reaching a solution on LCA subsidies.
For his part, Alenia,s Bertolone told us that, though Alenia
would appreciate a more proactive approach from the
government towards a resolution on subsidies, he was not
overly concerned (perhaps due to his doubts about the
viability of the A350). It seems to us likely that Alenia,s
relative sanguineness on the issue has only reinforced the
Trade Ministry's inclination toward passivity.

Other Ministries Also Passive - With One Significant Exception
-------------- --------------


13. (C) Other Italian ministries with a stake in trade issues
do not pick up the slack left by MPA/Foreign Trade, except in
the area of agriculture. The MFA has no equivalent to the
various trade offices in the State Department,s Economic
Bureau - its General Directorate for Multilateral Economic
and Financial Cooperation (Italian acronym DGCE) plays an
inconsequential role most of the time in setting Italian
trade policy. One exception involves trade issues discussed
within the G-8 process, as the DGCE,s Deputy Director
General is Italy,s Sous Sherpa on G-8 economic issues. The
MFA,s General Directorate for European Integration
occasionally intervenes on a trade issue if such an issue is
scheduled for discussion by the COREPER in Brussels; but even
in these cases, it looks to MPA/Foreign Trade for policy
guidance.


14. (C) The Ministry of Agricultural Policy, in contrast, is
anything but passive when it comes to Minister Gianni
Alemanno,s pet cause - inhibiting at every turn, through
whatever means possible, the cultivation and trade in

agricultural biotech products. Like Urso, Alemanno is
another up-and-coming politician from the same National
Alliance party, and correctly perceives opposition to
agricultural biotech as a politically expedient means to
build his political capital. In this respect, he is unlike
Urso, however, who at least until recently has not tended to
use foreign policy issues under his purview to
opportunistically burnish his public image.


15. (C) Despite Urso,s professed openness to increased
cultivation of GMOs in Italy, he has consistently been
unwilling to confront Alemanno, and is even unwilling to have
his ministry take pro-GMO decisions in Brussels when the MPA,
not MinAg, has the lead. In this last respect, Urso is in
good company, as all GMO-tolerant ministers within the GOI
downplay their differences with Alemanno (except in private
with us),due in large part to the Italian public,s
significant opposition to GMOs.

Chinese Textiles: Urso Energized by a Perceived Threat
-------------- --------------


16. (C) Vice Minister Urso has demonstrated uncharacteristic
vigor in the last few months regarding the threat to key
Italian industries from increased Chinese textile and apparel
imports, following the expiration of the multilateral Textile
Trade Agreement. To promote Italian foreign trade, his
ministry organized a well-received conference in February
that attracted several thousand participants, including Prime
Minister Berlusconi, Foreign Minister Fini, numerous other
senior GOI officials, and many of Italy,s top business
executives. At the conference, Urso appealed for EU action to
counter the perceived Chinese threat, an issue also raised by
both Berlusconi and Fini. Urso,s appeal undoubtedly stemmed,
at least in part, from political considerations, with the
Northern League party (one of two smaller partners in the
Berlusconi coalition government) urgently calling in its
campaign rhetoric for duties to be applied to Chinese
imports. Urso appears to be using the issue to broaden his
appeal (and that of his National Alliance party),in a
similar fashion to Alemanno,s campaign against GMOs. Unlike
Alemanno, however, Urso has the backing of just about every
party across the political spectrum in calling for the EU to
impose WTO-consistent safeguards measures on Chinese textile
imports.


17. (C) During a meeting with then-Commerce Under Secretary
Grant Aldonas in mid-March, Urso was emphatic about the
Chinese threat to the Italian textile industry. He suggested
that Italy and the U.S. cooperate to gauge the nature of the
threat accurately. Urso also emphasized that he planned to
push for immediate EC action during a meeting with European
Trade Commissioner Mandelson later that week. By some
accounts Italy has been the most active member state to push
the Commission to act. Nevertheless, Mandelson,s
announcement in mid-April of guidelines that would later
trigger actual EC action on safeguard measures fell well
short of Urso,s call for immediate relief.

Comment - Why Such Passivity?
--------------


18. (C) Italy,s generally passive approach to trade issues
did not begin with Urso,s tenure as Vice Minister and will
very probably persist after he leaves the ministry. To a
certain extent, such passivity results from the European
Commission,s jealously guarded responsibility for the trade
policies of all EU member states, a reality that limits even
the most activist Member State officials. However, the
Commission,s authority clearly does not prevent some other
countries from exerting substantially more influence on
Brussels than does Italy. Aside from this issue of
competency, we perceive that Urso and the career bureaucrats
in his ministry reflect a broader, long-standing Italian
tendency to seek the middle ground within the EU. Italy has
been a very strong, across-the-board supporter of the
European Project from the beginning, and has shown this
support by (mostly) downplaying those national interests that
may be at odds with the EU as a whole.


19. (C) In the past, the GOI's limited effectiveness in
Brussels could also be attributed to Italy's frequent changes
in coalition governments. Such changes made policy
continuity difficult, especially in the case of controversial

policies, thereby encouraging Italian bureaucrats to follow
the EU consensus. Recent experience indicates, however, that
even a long-lived governing coalition may not automatically
lead to a more assertive Italian projection of national
interests, at least in economic issues where the EU has the
lead. (On Common Security and Foreign Policy--i.e. second
pillar--issues, where Commission competence is more limited,
the Berlusconi government has become more assertive, for
example in supporting the U.S. on Iraq and successfully
resisting Franco-German attempts to establish a separate
defense planning headquarters outside the Berlin-plus
arrangements. Italy has not been in the vanguard, however,
in the other area of EU Member State competency, judicial and
law enforcement--i.e. third pillar--issues, which includes
counterterrorism. Italy's EU Commissioner, Franco Frattini,
heads this portfolio.)


20. (C) The main implication for the U.S. of the dynamic
described in this message is that even when Italy's interests
are aligned with ours in trade disputes with the EU
Commission and the larger Member States, we cannot count on
Italy's meaningful support. This situation is likely to
continue until such time as Italian trade officials see
Italy's long-term national interests better served by
becoming the thorn in the Commission's side, rather than the
poodle in its lap. End comment.


21. (U) This message was drafted by John Finkbeiner, based
on his experience over the last three years as Rome's trade
policy officer.

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2005ROME01623 - Classification: CONFIDENTIAL