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 ROME 00002580 002 OF 002 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