COMMERCE A/S SPOONER VISIT ADVANCES SETTLEMENT OF

C O N F I D E N T I A L OSLO 001326 SIPDIS SIPDIS COMMERCE FOR A/S SPOONER E.O. 12958: DECL: 10/13/2016 TAGS: ETRD EFIS PREL NO SUBJECT: COMMERCE A/S SPOONER VISIT ADVANCES SETTLEMENT OF NORWEGIAN SALMON TRADE DISPUTE Classified By: Deputy Chief of Mission, Kevin M. Johnson for reasons 1. 4 b and d ¶1. (C) SUMMARY: Norwegian and U.S. officials have moved closer to terms of an agreement that would end one of the USG's longest running trade disputes -- the 15-year old antidumping and countervailing duties on fresh and chilled Norwegian salmon. Assistant Commerce Secretary David Spooner and Norwegian Foreign Ministry representatives agreed during September 29 talks in Oslo that settling the case would be in the interests of both governments. A/S Spooner outlined, for purposes of discussion, what a possible settlement might look like, e.g. a bilateral executive agreement under which Norway committed to import quotas or target prices, or a combination of both, accompanied by U.S. industry's written agreement to withdraw its request for trade relief. The Norwegians were somewhat reluctant to agree to quotas, insisting that the duties were unfair as a matter of principle and should be lifted unilaterally. A more serious sticking point is persuading the U.S. industry, now largely owned by Cooke Aquaculture of Canada, to go along with any government-to-government deal. Cooke, the powerhouse of Atlantic seaboard salmon producers, appears to have little incentive to give up its U.S. subsidiaries' entitlement to trade relief. Norwegian salmon industry representatives, in a separate meeting with A/S Spooner, indicated that Cooke had sought a cash payment in exchange for withdrawing its trade relief petition. Norwegian industry is not willing to pay a high price, in either legal costs or a settlement with Cooke, to lift the duty orders because it has largely ceded the U.S. market to Canadian and Chilean suppliers. Though success is far from assured, the talks opened a useful dialogue for settling the oldest extant trade irritant in the bilateral relationship. The agreed next step is for Norwegian officials to draft and convey a proposed settlement outline to U.S. counterparts. END SUMMARY Norwegian Recalcitrance at WTO Prompts Washington to Act - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶2. (C) Assistant Commerce Secretary David Spooner visited Oslo on September 28-30 to address long-standing Norwegian complaints about U.S. countervailing and antidumping duties on Norwegian fresh salmon. A/S Spooner's main Norwegian interlocutors were MFA Director General Elisabeth Roderburg and WTO Chief Negotiator Evan Kittelsen. The salmon cases stretch back fifteen years. Much to Norway's surprise, the third sunset review of the duties in December 2005 resulted in confirmation of the existing 26 percent combined duty rate on Norwegian fresh salmon. The case has been a continual irritation in the bilateral trade relationship and, because of it, the Norwegians have been vocal critics of many U.S. positions in the WTO rules committee negotiations. By settling the case, U.S. officials hope the Norwegians will curb their strong criticisms and occasional obstruction of U.S. goals at the WTO. Both Governments Eager to Settle - - - - - - - - - - - - - - - - - ¶3. (C) The parties discussed two options for "making the case go away," as one participant in the talks put it. First, Norway might seek to open a changed circumstances review with either the Department of Commerce or the International Trade Commission. This option did not appear particularly promising, as the threshold for demonstrating that circumstances had changed was high and Norwegian industry would resist incurring additional legal costs to make the case. Norwegian industry had already spent over USD 4 million in legal fees fighting the duties and, given its professed lack of interest in reentering the U.S. market, was loathe to sink in more. Second, the two governments could come to a negotiated settlement implemented by executive order. The negotiated settlement option appeared more attractive (and cheaper) to Norwegian officials, though they still balked at having to commit to any voluntary quotas since they believe continuation of the duties is not justified. A settlement option might include a voluntary quota or a combination of quotas and minimum target prices for a number of years. But Will Industry Go Along? - - - - - - - - - - - - - - ¶4. (C) The Spooner delegation told the Norwegians that U.S. officials were committed to seeking a resolution, but dampened any expectations that it could occur quickly or easily. Both sides agreed that they would have to get their respective industries to go along. U.S. industry would be the toughest sell. Before an agreed settlement could take effect, U.S. salmon producers have to concede their entitlement to trade relief. Having just succeeded in having the duties extended for five years in the latest sunset review, they would seem to have little incentive to settle. To complicate matters, most of the U.S. producers have been bought up by Canadian salmon powerhouse Cooke Aquaculture, so Cooke would have to sign off on any deal. Commerce Department officials said they have been in periodic contact with Cooke's attorneys, who evince little inclination to settle. What Will it Take Get U.S. (Canadian) Industry on Board? - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶5. (C) Though Norwegian producers say they have no real interest in reentering the U.S. market, an expected surge in farmed Norwegian salmon supplies could pique U.S. industry interest in an agreed quota to minimize the risk that a new wave of salmon could hit American shores. Aquacultured salmon take about three years to reach maturity. Norwegian producers reportedly have so many "eggs in the water" now that a "salmon tsunami," as one participant in the talks termed it, could occur in three years' time. (Note: Such an action would involve true dumping by Norwegian producers who presumably would pay the duty to unload their bounty. End Note) A negotiated ceiling on Norwegian imports could thus prove attractive to Cooke by providing some insurance that this expected surge in Norwegian salmon would not seriously threaten Cooke's U.S. market share. ¶6. (C) Norwegian producers told A/S Spooner in a separate meeting that the expected increase in farmed salmon supplies would be absorbed by expanding markets in Russia, elsewhere in Europe, and Asia. Norwegian salmon could not really compete on price with Chilean and Canadian products in the U.S. If the future surge in Norwegian production were useful in prompting Cooke to accept a quota deal, however, the Norwegians were happy to let Cooke think they were a threat. Though professing lack of interest in the U.S. market, Norwegian producers were very interested in removing the blot on their reputations from being tagged as unfair traders. They were just not willing to pay very much to do so. The Norwegian producers told A/S Spooner that Cooke had offered last year to withdraw its trade complaint in exchange for a cash payment, but the price was too high. They were willing to talk to Cooke again about settling, but were not optimistic that the company would come around without a strong push from the USG (or more money than Norwegians are willing to pay). Deputy Foreign Minister Focuses on Practical Way Forward - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶7. (C) In a wrap-up meeting with Deputy Foreign Minister Liv Monica Stubholt, the parties agreed on the political desirability of removing this long-standing irritant in the bilateral economic relationship. They recognized that obtaining agreement from the salmon industries of both nations would not be easy, but pledged to continue working with their respective industries in pursuit of a settlement. The focus, said Stubholt, should now be on a "practical way forward." She suggested that Norway draft and convey through its embassy in Washington a written proposal outlining settlement principles and language. A/S Spooner agreed. Comment: What Price Principle? - - - - - - - - - - - - - - - - - ¶8. (C) The Norwegians were clearly gratified that the USG had taken the initiative to address their leading economic complaint against us. They sincerely believe that the long-standing duties against Norwegian salmon are unjustified and they are not shy about moralizing about, in their view, the unfairness of U.S. trade remedies. No one on the Norwegian side, however, is willing to pay very much to vindicate a principle when the likely economic benefits are so minimal. If Norwegian producers are to believed, Norwegian salmon is not likely to make a comeback in the U.S. market under any circumstances. Indeed, their protestations about lack of interest in the U.S. market were so consistent that some might speculate that they may have agreed, implicitly or explicitly, with their American competitors to keep out of each other's home turf. Seen from U.S. industry's point of view, there is practically no incentive to give up duty orders that not only keep potential Norwegian competitors at bay but, in accordance with legislation that allows protected producers to keep the duties for themselves, generate revenues. Bilateral agreement on settlement principles will probably be the easy part of resolving the salmon dispute. The hard part will be bridging the gap between what Norwegian industry is willing to pay for the intangible benefit of restoring its good name and what U.S. industry is willing to accept to give up the very tangible benefit of its entitlement to trade relief. ¶9. (U) A/S Spooner cleared this cable. JOHNSON