ITALIAN RESPONSE WEAK ON POSSIBLE WTO DISPUTE REGARDING

UNCLAS SECTION 01 OF 02 ROME 002580

SIPDIS

SIPDIS

USTR FOR POSNER (OGC)
USTR FOR WINTER (CHINA)
USTR FOR MCCOY (IPR)
STATE FOR EAP/CM
EB/TPP FELSING AND TPP/BTA SAEGER

E.O. 12958: N/A
TAGS: ECON ETRD AORC KIPR EURM WTRO USTR CH IT
SUBJECT: ITALIAN RESPONSE WEAK ON POSSIBLE WTO DISPUTE REGARDING
CHINA IPR VIOLATIONS

REF: STATE 126703


1. SUMMARY: A/ECMIN delivered reftel demarche to the Prime
Minister's office and to the Ministry of Foreign Trade. While the
GOI is broadly sympathetic to USG concerns regarding Chinese IPR
violations, China's potential as a large trading partner lessens GOI
enthusiasm for direct WTO action. GOI contacts indicate that EU
Commission support for WTO engagement is also weak. GOI action on
China's IPR threat in other international fora, such as the G8 or
OECD, remains possible. See Comment in Para 10. END SUMMARY

MEETING WITH PRIME MINISTER'S OFFICE
--------------


2. A/ECMIN delivered reftel demarche August 8 to Fabrizio Pagani,
Chief of Cabinet for the Prime Minister's U/S, Enrico Letta. Prior
to assuming his current position, Pagani worked on IPR issues at the
OECD and is a member of the G-8 IPR experts group. Pagani
acknowledged Chinese counterfeiting is a serious economic threat to
Italy, but countered that a TRIPS case against China might not be
effective. Pagani maintained that there is only one article under
TRIPs that addresses criminal violations and, moreover, it is only
an optional clause. He also indicated that even if China lost the
case, the cost of annoying China with a WTO suit might be too high.



3. Pagani suggested addressing China in the G-8 or the OECD.
According to Pagani, the OECD has already done preliminary work on
IPR on behalf of the G-8. He also noted that a WTO case would not
solve the larger problem of fixing the TRIPs agreement's weak IPR
criminal protection provisions. Pagani believes the matter must be
addressed more comprehensively and with wider scope, engaging
countries such as Brazil and India, to make them commit to
protecting IPR. (Note: Brazil, China, and India, of course, are
neither members of the G-8 nor the OECD. End note.) Pagani told us
G-8 experts will reportedly meet on October 30 in Moscow. He
believes G-8 experts may decide to explore launching a negotiation
with China.


4. According to Pagani, keeping the matter out of the WTO also
simplifies the process, as getting all 150-plus WTO member states to
agree is always difficult. On the other hand, he said, groups of
like-minded countries within organizations such as the OECD or the
G-8, may find it easier to reach an agreement, as was the case for
OECD agreements on shipbuilding and steel.


5. A/ECMIN then asked why the Commission believes EU member states
do not have a problem with Chinese infringement of EU IPR. Pagani
said he did not know, but agreed the problem does exist and must be
addressed with the Commission.

MEETING WITH MINISTRY OF FOREIGN TRADE
--------------


6. Separately, September 8 (after Italy's long summer recess),
A/ECMIN delivered reftel demarche to Foreign Trade Minister Bonino's
Chief of Technical Secretariat, Paolo Reboani. (Note: A/ECMIN's
meeting with Reboani immediately preceded the largest Italian trade
mission to China in Italy's history. The Mission will be lead by
Italy's Prime Minister Romano Prodi, who will be accompanied by
Foreign Trade Minister Emma Bonino, Economic Development Minister
Pierlugi Bersani, and at least two additional cabinet-level
officials. There will be over 700 Italian firms participating with
approximately 4,000 delegates. End Note.) U/S to the Prime Minister
Letta had already briefed Reboani on A/Ecmin's earlier delivery of
reftel demarche to his office and instructed Reboani to make himself
available to A/ECMIN.


7. Reboani indicated that the GOI is sensitive to the issue of
Chinese IPR violations as Italian industry is very concerned. Both
small and medium enterprises and larger manufacturers have "been on
the GOI's back" to address this issue. Reboani indicated that China
is not the only problem country and pointed to Vietnam, South Korea,
Thailand, and Malaysia as other countries whose poor IPR enforcement
adversely affects Italy.


8. Reboani assured A/ECMIN that the USG's position will be included
in Bonino's briefing material in preparation for the trade
delegation to China. He also told A/ECMIN that the GOI had already
intended to raise IPR issue during political discussions in China.
Reboani maintained that the GOI does not know how China will react
to Italy's "complaints." He does not believe that a formal
document/position will be reached during the trade mission. Reboani

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indicated that Italy is also considering addressing the matter
through use of bilateral sectoral agreements. For example, Italy's
textile industry has already proposed a bilateral with its Chinese
counterpart organization on protecting Italian textile industry IPR.
While this approach does not solve the problem, Reboani said, the
sectoral agreements raise the level of attention, and the hope is
that ultimately it will force the GOC to take some concrete action.



9. Reboani indicated that the GOI will "push" the EU Commission to
be more pro-active on Chinese IPR violations, but believes it is
unlikely the Commission would support the United States in a WTO
case. In fact, he said, not all EU countries see themselves as
affected by Chinese piracy in the same way, and some may have
actually benefited. However, Reboani commented, some, such as
Germany, might soon take a different position with respect to their
current neutrality on piracy, when they finally realize the damage
to their domestic industries. Reboani also noted that Italy faces
conflicting internal interests, as many Italian manufactures are
actually producing in China and exporting back to Italy, and may not
support upsetting the Chinese government. Reboani assured A/ECMIN he
will brief her upon return from China.

COMMENT
--------------


10. We have found GOI officials very sensitive to USG concerns on
the matter of Chinese IPR piracy and counterfeiting, and very aware
of damages to Italian industry. Both the Prime Minister's Office
and the Ministry of Foreign Trade clearly believe that some action
must be taken. However, they also candidly admit that the GOI is
very cautious in its relationship with China, potentially a huge
trading partner and foreign direct investor in Italy. Based on our
conversations, we believe Italy may be reluctant to enter into a
direct trade dispute with China, and would prefer seeking a softer
approach to encourage China to address piracy and IPR violations
more effectively. Similarly, our contacts expressed strong doubts
that the EU Commission will support the USG in a possible WTO
settlement action against China on IPR violations, since not all EU
countries perceive real calculable damage from Chinese piracy. We
will report our follow-up meeting with Reboani septel. END COMMENT.

SPOGLI