TRANSATLANTIC ECONOMIC COUNCIL LUNCHEON

C O N F I D E N T I A L SECTION 01 OF 02 STATE 160243

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/26/2017
TAGS: ECIN EINV ETRD EUN CH
SUBJECT: TRANSATLANTIC ECONOMIC COUNCIL LUNCHEON
HIGHLIGHTS U.S.-EU COORDINATION ON CHINA AND SOVEREIGN
WEALTH FUNDS

REF: STATE 157018 (NOTAL)

Classified By: EB A/S DAN SULLIVAN

1.(U) Summary: The November 9 meeting of the Transatlantic
Economic Council (TEC) concluded with a Cabinet-level
luncheon at the State Department focusing on common concerns
regarding sovereign wealth funds, national security, and
economic relations with China. Both sides agreed that we
must create a mechanism for closely coordinating our message
to China to ensure it takes U.S. and EU concerns more
seriously and plays more fairly, while at the same time
continuing to grow. Lunch participants lauded the U.S.-EU
investment dialogue launched by the TEC, noting that a
coordinated strategy on sovereign wealth funds would help
ensure a reasonable balance between security concerns and
promoting foreign investment. EU participants included TEC
co-chair and European Commission Vice President Guenter
Verheugen, Commissioner for Trade Peter Mandelson,
Commissioner for Internal Market and Services Charles
McCreevy, Commissioner for Taxation and Customs Union Laszlo
Kovacs, Commissioner for Consumer Affairs Meglena Kuneva,
Portuguese Minister of Economy Manuel Pinho and German senior
economic advisor Jens Weidmann. On the U.S. side,
participants included TEC co-chair and NEC Chairman Al
Hubbard, Secretaries Chao, Chertoff, Gutierrez, and Paulson,
Acting Secretary Conner, USTR Schwab, EPA Administrator
Johnson, NSC deputy Daniel Price, and U.S. Ambassador to the
EU C. Boyden Gray. EEB Assistant Secretary Daniel Sullivan
hosted. End Summary.


China -- United we stand, divided we fall:
--------------

2.(C) Mandelson laid out three priorities for China that
closely mirror the U.S. agenda in the Strategic Economic
Dialogue. He argued we should treat China &more normally,8
meaning making fewer allowances and pursuing stronger
enforcement of WTO rules and other Chinese commitments. He
called for closer U.S.-EU collaboration to align our
policies, noting China,s expertise in dividing and
conquering. He said China must overcome a &governance
deficit,8 but the best way to achieve this would be for the
U.S. and EU to engage, rather than confront. Mandelson said
the EU is pushing China on investment conditions, currency,
climate, and product safety. U.S. participants agreed that
we are far more successful with a multilateral approach to
China, because China fears standing out. The U.S. side
suggested the U.S. and EU compare points before the upcoming
EU-China bilateral, the December U.S.-China Joint Commission
on Commerce and Trade (JCCT),and the U.S.-China Strategic
Economic Dialogue (SED).


TEC Drives Progress on Sovereign Wealth; National Security:
-------------- --------------

3.(C) Mandelson and U.S. participants praised the
newly-launched U.S.-EU investment dialogue as a vital vehicle
to discuss and coordinate sovereign wealth fund strategies,
addressing both security concerns and the need to promote
further investment. They agreed that, while wanting to
encourage reciprocal openness to investment in third
countries, the U.S. and EU must take a leadership role in
welcoming investment even if other markets remain closed.
Mandelson argued that sovereign wealth funds are not
necessarily a bad thing, but that we need to ensure their
transparency. He cautioned that governments on both sides of
the Atlantic must be careful not to over-react or otherwise
give the impression that we are afraid of foreign investment.
He observed that both the U.S. and EU members already have
mechanisms in place to ensure that foreign investments do not
threaten national security. McCreevy added that the EU
welcomes a G7/ multilateral approach to sovereign wealth
funds, that the EC and member states are happy with the newly
enacted EU oversight mechanism on foreign investment, and
that a non-paper on proposed rules to implement this
mechanism would be out before Christmas.


National Security Disagreements: Iran and Gazprom
-------------- --------------


4. (C) Verheugen countered that some industries were truly
strategic, citing the importance of Iran to the German energy

STATE 00160243 002 OF 002

SUBJECT: TRANSATLANTIC ECONOMIC COUNCIL LUNCHEON
HIGHLIGHTS U.S.-EU COORDINATION ON CHINA AND SOVEREIGN
WEALTH FUN
industry, &representing trillions of dollars with no
question of bad intent.8 He said Gazprom,s pricing system
was a relic of the Soviet Union, as problems with Ukraine
bore out. He urged caution against making strategic
industries, a big issue, to prevent a backlash. Verheugen
opined that if Germany were not active, China and India would
fill the gap. He listed the truly strategic sectors as
defense, telecom networks, steel, electricity, and food. The
NSC warned that rather than debate this, the U.S. and EU must
find a cooperative solution that does not require legislation.


5.(U) Co-chairs Verheugen and Hubbard agreed to formally
adopt the TEC statement they had finalized the night before
(please see http:// www.state.gov/p/eur/rt/ eu/c12967.htm).
Verheugen offered to host the next (Spring 2008) meeting,
noting that continued high-level participation would be the
key to more successful outcomes.
RICE