TREASURY DEPUTY SECRETARY KIMMITT'S DISCUSSIONS

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E.O. 12958: DECL: 02/10/2017
TAGS: EFIN ETRD PREL ETTC PTER GM
SUBJECT: TREASURY DEPUTY SECRETARY KIMMITT'S DISCUSSIONS
WITH GERMAN ECONOMICS STATE SECRETARY PFAFFENBACH ON DOHA,
TRANSATLANTIC INITIATIVE, SANCTIONS, AND ERP


Classified By: EMIN Robert F. Cekuta for reason 1.4 (b) and (d)


1. (C) Summary -- Meeting with Economics Ministry State
Secretary Bernd Pfaffenbach February 7, Treasury Deputy

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Secretary Kimmitt discussed moving forward on the

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Chancellor's transatlantic economic initiative, the Doha
Development Agenda, the importance of implementing strong
financial measures to convince Iran to step back from
terrorist and proliferation activities, and USG concerns
about the planned restructuring of the Economic Recovery
Program funds. Pfaffenbach said the German Presidency, the
Commission, and the U.S. should be able to pursue the
Chancellor's transatlantic initiative as a deliverable for
the April U.S./EU Summit. He reviewed the state of play with
Doha, suggesting there needs to be simultaneous movement by
the U.S. and EU on agricultural issues and by major emerging
market countries on NAMA and services. On Iran sanctions,
Pfaffenbach said Germany shares the USG's interest in getting
Iran to reverse course on proliferation and that in
implementing the UNSCR 1737, Germany and the EU have gone
beyond the letter of the resolution. German trade with Iran
is dropping and so is the amount of Hermes credit guarantees.
However, a complete halt to export credits might lead to
Iran stopping all repayments and also undercut groups opposed
to the regime. Pfaffenbach agreed Germany needs to consult
with the U.S. before making changes in the use of ERP funds
and said the funds are going to German SME's, "not Airbus."
End Summary.

Merkel's Transatlantic Initiative


2. (C) Treasury Deputy Secretary Kimmitt began the
discussion by saying that Merkel's initiative is supported at
the highest levels of the USG. He said the Chancellor's
transatlantic economic initiative, which focuses on
non-tariff barriers, does not compete with Doha, which
continues as a time-sensitive high priority. Rather than
looking at tariffs, the initiative focuses on other areas
where governments have not done as much to open markets.
State Secretary Pfaffenbach noted there are various working
groups in the German Government engaged in the Chancellor's
initiative, including a climate change/energy group chaired
by the Environment Ministry. The Economic Ministry is doing
the bulk of the staff work for the initiative with Knut
Brunjes, Deputy Director General for Trade Policy, heading
the effort there. The first important date is the April 30
Summit, and we need to see how much progress we can make by
that point. He agreed there needs to be a clear work plan on
how the U.S. and the EU will continue the effort past the
Summit. The State Secretary noted TABD and U.S. Chamber of
Commerce support for the initiative and said EU Trade
Commissioner Mandelson was struck during the discussion with
business groups in Davos by the Chancellor's personal passion
for seeing her initiative realized.

Doha Development Agenda


3. (C) Reacting to Deputy Secretary Kimmitt's point that
Germany needs to show leadership now, Pfaffenbach stated his
full agreement that the Doha Development Agenda's success
will be the most important international economic policy
issue for the coming months. He said expiration of TPA is
one reason why time is short, but noted as well that the
President has called for Congress to renew this authority.
Pfaffenbach reported he had met with WTO Director General
Lamy in Geneva and with other senior figures in Davos who are
involved in the talks. One key to success is France.
Pfaffenbach noted French Trade Minister Lagarde may
personally see reasons to be more flexible, but said she is
held in close check by the French President's office. She is
also "in a struggle with Peter Mandelson" to keep his mandate
limited. Pfaffenbach noted Chirac had written the Chancellor
saying the EU should not move further on agriculture. It is
against this background that the EU Trade Ministers will soon
hold their informal meeting with German Economics Minister
Glos in the chair and Pfaffenbach representing Germany.


4. (C) After noting he is trying to bridge these gaps,
Pfaffenbach set out three points where he thinks the key
players need to move -- and move concurrently -- if the Round
is to succeed. The first is the U.S. and the new farm bill;
the high prices prevailing for agricultural products should
give the U.S. room to drop levels of support. The second is
the need for Brazil, India, and other large emerging market
economies to move on nonagricultural market access. He
thinks Brazil may be ready to move, but there are no signals
of flexibility yet from India. The third is the need for the
EU to move on agricultural market access. France will be
opposed, but if there is movement on all three fronts at the

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same time -- something he intimated Lamy and others can be
quietly arranging -- then the pressure will be on the GOF to
back down. He said Germany would be prepared to push Paris
hard at that point to allow the needed concessions. Deputy
Secretary Kimmitt also pointed to the need for progress in

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liberalization in services, in the wake of an agreement on
agriculture, adding that developing countries need to
understand that movement on this front is in their interest
as well.

Iran Sanctions and Export Credits


5. (C) Noting the statement that came out of the EU Foreign
Ministers' meeting on UNSCR 1737 and appreciating the role he
understood German Foreign Minister Steinmeier played in
achieving that positive result, Deputy Secretary Kimmitt
stressed it is important now for the Commission and member
states to take the necessary steps to implement the
resolution. He was particularly pleased with the GAERC's
language on banning transactions with prohibited entities.
Action is needed now in Brussels and at the national level.
The focus is on implementing 1737, but governments should not
feel constrained in taking further steps that would make the
sanctions on Iran more effective.


6. (C) Pfaffenbach said "we totally share your interest" and
that Germany also wants to push Iran to move in the right
direction. Germany had gone beyond what was called for in
1737 in deciding how to implement it. Turning to Treasury
Deputy Secretary Kimmitt's concerns regarding export credits
for Iran, the State Secretary said Germany had "dramatically
cut the volume of export credits in the past year." At the
moment, export credit decisions are made on a case-by-case
basis, and dual-use items cannot qualify for Hermes credit
guarantees. If Germany completely stopped export credit
guarantees, Pfaffenbach continued, the Iranians might stop
all repayments on amounts owed. The Treasury Deputy
Secretary emphasized that Germany needs to look at the bigger

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picture. In Iran, it is nearly impossible to know your
customer. Furthermore, the German taxpayer should not be
asked to pay subsidies on risk created by the Iranian regime.
Pfaffenbach noted that a complicating factor is payments
outstanding with Iranians. There is concern that if credits
are reduced to zero, the possibility of payment would also be
reduced significantly.


7. (C) Pfaffenbach noted that he had received questions from
the press about Commerzbank and asked for Deputy Secretary
Kimmitt's advice on how to respond. Deputy Secretary Kimmitt
said that Treasury, after contacting governments, has been in
touch with major bank with operations in the U.S. to make
them aware of the risks to their U.S. business based on their
international financial activities with Iran. The Iran
Sanctions Act, he noted, which the USG had not invoked, gives
the Secretary of State the authority to require companies to
choose whether to do business with the U.S. or Iran.
Treasury Deputy Secretary Kimmitt also pointed out that other
banks, such as Credit Suisse and UBS, have made public
statements about scaling back their business with Iran
voluntarily.

ERP


8. (C) Deputy Secretary Kimmitt stated his appreciation for
receiving the German draft legislation and the access to the
Bundestag discussion on the proposed changes in the European
Recovery Program funds (ERP). He noted the USG position that
we need to agree before Germany makes changes in the uses of
the funds. Pfaffenbach replied "absolutely." "You have
every right to ask questions because it was your money."
Germany's aim has been to do nothing that causes problems for
the U.S. and Pfaffenbach added that ERP money is not going to
Airbus, but to small and medium enterprises. He agreed to
make sure the funds were strictly separated from the parts of
the Kreditanstalt fuer Wiederaufbau used for holding the
German Government's shares of state-owned or formerly
state-owned companies such as Deutsche Telekom or Deutsche
Bahn. The Treasury Deputy Secretary pointed out the
possibility, however, of public confusion -- and political
problems resulting -- from moving the funds to the KfW. Even
if ERP funds are used for their intended purposes, the added
leverage to KfW's balance sheet might create opportunities
for controversial uses. Pfaffenbach agreed to look into the
issue. He also noted the differing views between the Finance
and Economics Ministries over changing the current
arrangement with the ERP funds as well as the parochial
interests of various Bundestag members in making the proposed
changes.


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9. (U) Treasury Deputy Secretary Kimmitt has cleared this
message.
TIMKEN JR