COMMERCIAL ADVOCACY SUCCESS STORY -- GENERAL

UNCLAS SECTION 01 OF 02 PARIS 002426

SIPDIS

SENSITIVE

STATE PASS USTR

E.O. 12958: N/A
TAGS: BEXP EIND EINV FR IT ETRA
SUBJECT: COMMERCIAL ADVOCACY SUCCESS STORY -- GENERAL
ELECTRIC SALE OF NAVAL FRIGATE PROPULSION SYSTEMS TO
FRENCH/ITALIAN CONSORTIUM

SUMMARY
--------------


1. (SBU) After two and a half years of advocacy by Embassy
Paris, and considerable efforts on the part of Embassy Rome,
General Electric (GE) has finally signed a contract to
supply propulsion systems to the Franco-Italian Multi-
Mission Frigate (FREMM) program. Letters from President
Bush, Secretary of Commerce Gutierrez and Secretary Rice
helped seal the USD 200 million transaction. The contract
is expected to produce up to another one billion dollars in
GE sales through a worldwide partnership created under the
agreement. Close interagency coordination in Paris, Rome
and Washington made this commercial advocacy success
possible. The deal is also tangible evidence of the value
of our American Presence Post (APP) concept. END SUMMARY.

BACKGROUND
--------------


2. (SBU) GE first approached Embassy Paris in June 2003
about assistance in competing for this contract, which is
pursuant to a joint naval shipbuilding program that will
supply 17 frigates to France and 10 to Italy. The primary
constructor of the French vessels is the Directorate of
Naval Construction of France (DCN). GE's competitor for the
supply of the propulsion systems was Rolls Royce (RR) of the
UK. GE, in order to add a European dimension that was
necessary to gain credibility in the process, partnered with
Avio of Italy so that Rolls Royce could not overplay the
European nature of its bid and to give the Italians reason
to support GE. At one point in the fall of 2003, GE had
virtually thrown in the towel, perceiving that RR simply had
too much political clout in its favor and that the
consortium would choose the all-European option. At that
point, the Embassy began its efforts to stop the march
toward a selection of RR.


3. (SBU) The impetus initially came from a State Department
Foreign Service National (FSN) employee in the American
Presence Post in Rennes, in which district lies the
headquarters of DCN. The FSN had developed close contacts
in DCN as they attempted to find American suppliers in their
efforts to become a truly competitive shipyard after they
were hived off from the French Ministry of Defense into a
separate corporation looking to supply parties outside of
France. Former Amb. Leach visited DCN in February 2004 at
APP Rennes' suggestion, and pressed GE's case with DCN
officials.


4. (SBU) The Commercial Service of the Dept. of Commerce
(FCS),the Embassy Economic Section and the Office of
Defense Cooperation (ODC) then began a program of visits to
French military authorities. They also coordinated efforts
of GE France, GE U.S., the Dept. of Commerce's Bureau of
Industrial Security, and the U.S. Dept. of Defense to build
an advocacy strategy. Embassy Paris assisted GE throughout
the campaign, directly lobbying the Defense Minister and
other high Ministry and government officials at critical
junctures when RR mounted a counterattack. The UK
government involvement went to the very highest levels, with
Prime Minister Blair intervening personally on several
occasions.


5. (SBU) GE's propulsion units were significantly cheaper
(by half) than RR's, partly because virtually all of their
R&D costs had been recovered through sales of hundreds of
units of earlier versions of the veteran turbine they
offered to FREMM, while RR was building in the cost of its
R&D for a brand new, unproven engine. RR relied on its
"European" stamp, claimed a superior industrial
participation (offset) program, and raised the specter of
U.S. export controls. FCS and ODC intervened regularly to
coordinate responses to these tactics, in close
collaboration with GE.


6. (SBU) When the Embassy discovered that British Prime
Minister Blair was personally sending letters to French
President Chirac and Italian Prime Minister Berlusconi,
Embassy Paris and Embassy Rome worked with U.S. agencies to
obtain letters of support from Secretary Rice and Secretary
Gutierrez. Finally, the persistent intervention of Prime
Minister Blair led to the request for a presidential letter
of support, which was signed by President Bush in August

2005.


7. (SBU) COMMENT. The GE case highlights what can be
achieved when agencies collaborate closely, and points out
the value of judicious use of Presidential involvement.
Careful interagency coordination between three different
agencies at Embassy Paris, and close cooperation with
colleagues at Embassy Rome and in the Departments of
Commerce, Defense, State and USTR made this a success. The
President's personal involvement in writing to French
President Chirac and Italian Prime Minister Berlusconi was
critical. Finally, none of this would have occurred with
the strong on-the-ground ties forged by APP Rennes with
officials of the French primary constructor, DCN.

STAPLETON