GH SUBSIDIARY SIGNS STRATEGIC COOPERATION DEAL

C O N F I D E N T I A L SECTION 01 OF 02 TASHKENT 000978

SIPDIS

SIPDIS

DEPT FOR SCA/CEN AND EB

E.O. 12958: DECL: 05/18/2017
TAGS: EIND ECON ETRD ELTN EINV KS UZ
SUBJECT: GH SUBSIDIARY SIGNS STRATEGIC COOPERATION DEAL
WITH THE UZBEKS

REF: TASHKENT 829

Classified By: CDA Brad Hanson for reasons 1.4 (b) and (d).


1. (C) Summary: On May 1, the Chief Executive Officer of
General Motors' South Korean subsidiary, GM-DAT, signed a
major cooperation agreement with the Government of
Uzbekistan. The deal was personally endorsed by President
Karimov and heralded in the state-run press, which, however,
ignored the company's American connection. The agreement
outlines plans to upgrade production at Uzbekistan's
state-owned UzDaewoo plant, thereby enabling Central Asia's
largest auto manufacturer to remain competitive in a growing
export market. At present, GM-DAT will restrict its presence
to a series of technical expert teams, but may open a local
office later. The agreement is crucial not only to
Uzbekistan's auto industry, but also to the depressed economy
of the Ferghana Valley, where UzDaewoo is one of the few
major employers. End summary.


2. (U) On May 1, during a brief visit to Tashkent, Michael
Grimaldi, the Chief Executive Officer of General Motors'
South Korean subsidiary, GM-Daewoo Auto and Technology
(GM-DAT),and also a GM vice-president, met with President
Islam Karimov and signed an "agreement on strategic
cooperation" with the Government of Uzbekistan. The
state-controlled national newspapers published long feature
articles highlighting the agreement. Press coverage noted
the growing output of Uzbekistan's auto industry and the
importance to the country's economy of cooperation with
GM-DAT. In keeping with the troubled state of U.S.-Uzbek
bilateral relations, however, the press did not mention
GM-DAT's American connection.


3. (C) GM-DAT and GM executives based in Europe had briefed
emboffs on the agreement in advance of Grimaldi's visit
(reftel). Following the signing, Grimaldi telephoned Charge
with a readout of his meetings with Uzbek officials. He said
that the Uzbek side raised the issue of troubled U.S.-Uzbek
relations; Grimaldi reportedly told Karimov that he was not a
politician, but a businessman looking for business
opportunities. Nevertheless, he told Karimov, he would be
pleased if cooperation between GM-DAT and Uzbekistan could
help improve bilateral political relations.


4. (C) Grimaldi said that the agreement provides a framework
for cooperation to upgrade production at Uzbekistan's
state-owned UzDaewoo production plant in Asaka, near Andijon.
(Note: UzDaewoo, Central Asia's largest automaker, already
assembles vehicles that incorporate parts supplied by GM-DAT.
End note.) It envisions cooperation on starting new vehicle
production lines, adding new suppliers of parts, and
significantly expanding Uzbekistan's export of vehicles to
former Soviet countries, primarily Russia, Ukraine, and
Kazakhstan. The agreement provides a six-month deadline for
completing studies and finalizing contracts between the two
sides. GM-DAT does not plan a permanent presence in
Uzbekistan at this time, according to Grimaldi, but instead
will continue to send teams of experts to discuss and
negotiate with Uzbek counterparts. Later, he said, the
company may open a small office in Uzbekistan. Grimaldi told
Charge that GM's government relations office in Washington
would likely be in contact with the Department to discuss
further the company's plans and the agreement.


5. (C) Comment: The agreement with GM-DAT could potentially
be quite significant. If successful, technical cooperation
with GM-DAT promises to help revive UzDaewoo's increasingly
obsolescent production line, most importantly in the near
term as its chief export market, Russia, introduces new
emissions standards in 2008. (Note: Russia is unhappy with
Uzbekistan's automotive trade barriers, including import caps
and heavy tariffs. Currently, Russia is limited to exporting
5,000 cars/year to Uzbekistan, but Uzbekistan exports over
97,000/year to Russia. End note.) The continued vitality of
UzDaewoo is vitally important to the depressed Ferghana
Valley, where the automaker is a principal employer and
perhaps the only growth industry. The political significance
of the deal was also critical: the signing came less than two
weeks before the second anniversary of the 2005 Andijon
violence; the six month deadline for concrete action falls on
November 1, less than two months before the expected December
23 presidential election.

TASHKENT 00000978 002 OF 002




6. (C) Comment cont.: The next six months will be a real test
of the GOU's desire to modernize and its internal ability to
take on a larger role in the international economy. After a
few failed attempts with other automakers, most notably
Hyundai, UzDaewoo is left with one option. At present, GM
and UzDaewoo are competitors in the CIS markets. Based on
our dialogue with GM-DAT, the company is working to ensure
that its technical assistance to UzDaewoo does not cause GM
to lose its share of these markets. In theory, this should
not happen if UzDaewoo agrees to export only uncompetitive
autos (i.e. not sedans) or, in the longer term, sell
Uzbek-built cars under the GM brand name. If UzDaewoo
chooses to play a zero sum game and not deal, GM-DAT can
always look for business opportunities elsewhere, unlike
UzDaewoo.
HANSON