Identifier
Created
Classification
Origin
08BRUSSELS881
2008-06-11 13:10:00
CONFIDENTIAL
USEU Brussels
Cable title:  

LUNCH SESSION OF TRANSATLANTIC ECONOMIC COUNCIL

Tags:  ECIN EAGR EIND EINV EFIN ENRG ETRD EUN RU 
pdf how-to read a cable
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C O N F I D E N T I A L SECTION 01 OF 04 BRUSSELS 000881 

SIPDIS

STATE PASS TO USTR AND OIRA/OMB AND SEC
HHS FOR FDA COMMISSIONER

E.O. 12958: DECL: 06/10/2018
TAGS: ECIN EAGR EIND EINV EFIN ENRG ETRD EUN RU
SUBJECT: LUNCH SESSION OF TRANSATLANTIC ECONOMIC COUNCIL
(TEC) MAY 13, 2008

Classified By: Charge Christopher W. Murray for reasons 1.4 (b) and (d)
.

Participants:
U.S. Side

Dan Price, Assistant to the President for International
Economic Affairs, NSC
Ed Schafer, Secretary of Agriculture
Elaine Chao, Secretary of Labor
Susan Schwab, U.S. Trade Representative
Robert Kimmitt, Deputy Secretary of the Treasury
Reuben Jeffery, Under Secretary of State for Economic,
Energy, and Agricultural Affairs
Andrew Von Eschenbach, FDA Commissioner
Paul Atkins, Commissioner, Securities and Exchange Commission

C. Boyden Gray, Special Envoy for EU Affairs
Susan Dudley, Administrator OIRA/OMB
John Herrmann, Special Assistant to the President and Senior
Director for International Trade,Energy, and the
Environment, NSC
Julie Nutter, Notetaker, U.S. Mission to the EU

EU Side

Guenter Verheguen, Commissioner for Enterprise and Industry
Peter Mandelson, Commissioner for Trade
Charlie McCreevy, Commissioner for Internal Market and
Services
Meglena Kuneva, Commissioner for Consumer Protection
Laszlo Kovacs, Commissioner for Taxation and Customs Union
Joaquin Almunia, Commissioner for Economic and Monetary
Affairs
Andrej Vizjak, Slovenian Economy Minister
Alan Seatter, Director, External Relations (RELEX)
John Farnell, Notetaker, Enterprise and Industry

C O N F I D E N T I A L SECTION 01 OF 04 BRUSSELS 000881

SIPDIS

STATE PASS TO USTR AND OIRA/OMB AND SEC
HHS FOR FDA COMMISSIONER

E.O. 12958: DECL: 06/10/2018
TAGS: ECIN EAGR EIND EINV EFIN ENRG ETRD EUN RU
SUBJECT: LUNCH SESSION OF TRANSATLANTIC ECONOMIC COUNCIL
(TEC) MAY 13, 2008

Classified By: Charge Christopher W. Murray for reasons 1.4 (b) and (d)
.

Participants:
U.S. Side

Dan Price, Assistant to the President for International
Economic Affairs, NSC
Ed Schafer, Secretary of Agriculture
Elaine Chao, Secretary of Labor
Susan Schwab, U.S. Trade Representative
Robert Kimmitt, Deputy Secretary of the Treasury
Reuben Jeffery, Under Secretary of State for Economic,
Energy, and Agricultural Affairs
Andrew Von Eschenbach, FDA Commissioner
Paul Atkins, Commissioner, Securities and Exchange Commission

C. Boyden Gray, Special Envoy for EU Affairs
Susan Dudley, Administrator OIRA/OMB
John Herrmann, Special Assistant to the President and Senior
Director for International Trade,Energy, and the
Environment, NSC
Julie Nutter, Notetaker, U.S. Mission to the EU

EU Side

Guenter Verheguen, Commissioner for Enterprise and Industry
Peter Mandelson, Commissioner for Trade
Charlie McCreevy, Commissioner for Internal Market and
Services
Meglena Kuneva, Commissioner for Consumer Protection
Laszlo Kovacs, Commissioner for Taxation and Customs Union
Joaquin Almunia, Commissioner for Economic and Monetary
Affairs
Andrej Vizjak, Slovenian Economy Minister
Alan Seatter, Director, External Relations (RELEX)
John Farnell, Notetaker, Enterprise and Industry


1. (C) Summary: At the May 13 U.S.-EU Transatlantic Economic
Council meeting in Brussels, principals held a private lunch
where they discussed how to combat protectionism, responses
to food crises, biotechnology and biofuels, and our
respective approaches to Russia. On combating protectionism,
participants agreed that the U.S. and the EU should be alert
to any use, particularly among emerging economic powers, of
the pretexts of the economic downturn, food crises, the

credit crunch, or negative responses to globalization to
promote protectionism. On the links being made between food
crises and biofuels production, several participants
highlighted the need for policymakers to push back strongly,
citing the factual basis of food shortages, i.e., rising
global demand for food and feed, and benefits of using
biofuels. The TEC can help by promoting regulatory
cooperation in biofuels and other energy-saving technologies.
Participants exchanged views on agricultural biotechnology
as the best solution to food crises, and the U.S. side
pointedly underlined their perception that negative attitudes
on the part of some member states and some in the European
Commission smacked of protectionism and had serious impacts
on the ability of poorer countries to use biotech products to
increase agricultural yields. On Russia, attendees varied in
their assessment of Russian reform and the best path for the
West to take; EU TEC co-chair Verheugen agreed to consult
with U.S. counterparts upon his return from the June 18
EU-Russia Summit. End

Summary

Combating Protectionism


2. (U) EU Trade Commissioner Peter Mandelson led off the
discussion on combating protectionism by noting that if the
assessment that protectionism is rising "structurally" is
correct, policymakers need to determine how to respond. To
be sure, he said, those who currently advocate erecting
protectionist barriers are speaking with more confidence,
aided by global economic uncertainty; rising food and fuel
prices; the stagnation of real wages in many countries; the
challenge of climate change; louder demands for state
intervention in economic matters; and a shift in relative
economic power around th globe. Adding to these pressures,

BRUSSELS 00000881 002 OF 004


he noted, is a perception in some industrialized nations that
emerging economic powers are shirking economic responsibility
with impunity.


3. (SBU) That said, Mandelson continued, the US and the EU
remain the world's largest economic powers, and as such share
responsibility for economic leadership. To address some of
the aforementioned concerns, transatlantic policymakers need
to reiterate our commitment to economic liberalization;
however, we also need to present stronger economic arguments
for maintaining openness and to warn of the very real dangers
of beggar-thy-neighbor policies. We need to promote a
virtuous circle of liberalization, not a destructive cycle of
closing. The NSC's Dan Price noted that in the U.S., some
perceive globalization as benefiting only the elite, without
a concomitant expansion of the social safety net for those
who have been negatively affected. Price noted that
policymakers now have to rebuild a constituency for
globalization. As an analytical matter, he said, we have to
separate trade protectionism from investment protectionism,
since they are different phenomena with different origins.


4. (SBU) Mandelson posited that the U.S. and the EU would
probably be more successful if we made a better case for
reciprocity across the board, and in particular, if we were
united on how we approach sovereign actors practicing state
capitalism. The primary weakness the U.S. and the EU have in
dealing with these state actors is that we do not currently
have the strength of the multilateral system behind us to
hold the emerging economies to account. That is why, he
stated, the Doha Development Round is so important. Doha
would not only enhance market access, its most obvious
function, but it also would bind countries to openness,
reducing the scope and space for future protectionism, be it
protectionism targeted at trade or investment.

Food Crisis, Biotechnology and Biofuels


5. (C) Mandelson noted that the food crisis is a long-term
structural issue, and warned that policymakers are more
likely to get it wrong if they respond with panicky,
short-term solutions rooted in protectionism. What the U.S.
and the EU do not want to see is a global shift to managed
agricultural trade, despite what some EU member state
agricultural ministers say (Comment: an explicit reference to
the French and the German agriculture ministers). The
longer-term answer, stressed Mandelson, is higher
agricultural productivity in developing countries. Price
commented that protectionist trends were strengthening before
global food price increases came to a crisis point, but the
food crisis has accentuated them.
Regarding the need for higher agricultural productivity,
Price observed that policymakers have mistakenly framed
biotechnology as a trade issue only, when it is actually also
a means to address a humanitarian need. President Bush
wanted him to stress this point at the TEC, Price said.
Agriculture Secretary Schafer underlined the fact that the
cause of current food shortages is not commodity availability
- globally, short-term supplies are still adequate - but in
the longer-term, increasing consumption will demand higher
yields. According to Schafer, the only countries in the
world that are currently experiencing higher yields are
(Comment: GMO-producing) Argentina, the U.S., and Canada.


6. (C) Commissioner Verheugen noted that in Europe, green
biotechnology is highly ideological; the limits on production
and consumption stem from societal preference rather than
from protectionism. Secretary Schafer pointed out that when
the EU tells Africans that Europe cannot import biotech
products, it prevents Africans from importing seed to use to
grow the crops that could have higher yields. Dan Price
interjected that the effect of limiting trade in biotech
products is ultimately protectionist and increasingly a food
problem. USTR Schwab commented that French farmers made the
decision to use biotech seeds that have a 10-year record of
safety. There appears to be a "remarkable correlation"
between regimes that are seriously protectionist and those
with a history of hostility to biotech products, she noted.
The key is educating the public. The TEC's risk assessment
work could be helpful here. Internal Market Commissioner

BRUSSELS 00000881 003 OF 004


McCreevy said he thinks Irish farmers would plant GMO crops
if they could, but the green lobby is "very difficult".


7. (SBU) On biofuels, Mandelson continued, proposals have
been made to limit biofuels production or trade in order to
protect domestic markets; the answer really lies in producing
or using the most efficient biofuels. Targeting U.S.
biofuels subsidies, Mandelson observed that if governments
were to focus on orienting policies toward producing the
right biofuels, subsidies would not be an issue. Verheugen
reminded everyone that biofuels do not provide the only
solution to the climate change problem; we must also increase
energy efficiency, conservation, and use other means of
lowering energy use. He characterized the biofuels debate as
"already lost", since (specious) links have been made between
food crises and biofuels production.


8. (SBU) Mandelson disagreed, saying he believes
policymakers have not had the confidence to mount a
persuasive counter-argument, and expressed the hope that the
issue would be taken up in the G-8. Secretary Chao observed
that Treasury Secretary Paulson had already raised the issue
in a G-8 context, and the recent OECD Labor Ministers meeting
had taken up the point as well. Special Envoy Gray pointed
out that no one has highlighted the role of biofuels in
lowering gasoline prices, and said the price of gasoline
relative to crude oil is at an historic low in the U.S.
Price noted that the prevailing wisdom on biofuels, i.e.,
that the production of biofuels consumes more energy than is
saved by their use, has not been conclusively proven. We
should "get the (positive) story out", he said, accelerate
TEC work on biofuels standards with the Brazilians, and work
for clean technologies in the TEC.


9. (SBU) On climate change, Mandelson opined that we need to
approach the issue with a more integrated view of climate
change and economic policy, and we need to involve all major
economies, with common but differentiated responsibilities.
We should accomplish this, he stated, without resorting to
trade-distorting measures such as border taxes. Price agreed,
noting that he wants to include energy technologies in the
TEC for one main reason - to ensure that economic and trade
ministers, not just environment ministers, are discussing
issues related to climate change.

Protectionism and Financial Services


10. (SBU) Commissioner McCreevy observed that sovereign
wealth funds had actually helped to buoy the world economy
during the credit crunch. He assessed that protectionist
tendencies in financial services have diminished from a year
ago, and commented that the financial crisis had actually
lessened protectionist pressures by demonstrating the global
economy's interdependence. Deputy Secretary Kimmitt noted
that the transatlantic response to the credit crisis had been
a "textbook case" of a measured reaction. Kimmitt added that
he believes bilateral and multilateral cooperation in the
crisis allowed for a diversity of solutions. On the question
of the regulation of complicated financial instruments,
Kimmitt said the sophistication of the products simply
outstripped the ability of firms, rating agencies and
regulators to adequately value underlying risk. However,
Kimmitt noted, he sees robust evidence of a continued
customer appetite for sophisticated financial products and
investment in the U.S. financial sector, citing interest from
Chinese banks.


11. (C) Commissioner McCreevy noted that it was largely
regulated financial products that caused the biggest
valuation headaches; thus, financial institutions will have
to take a "hard look" at their policies and operations to
determine what constitutes truly prudential regulation. Of
course, he added, this also applies to third countries.
There is a need for careful regulation, he said, but there
will also be the temptation to use regulation as a tool for
protecting sectors. The Chinese, for example, will have to
walk a fine line, since what might be used to protect their
financial sector could limit their access to innovative
products. Price summed up the preceding conversation by
noting that all agreed that U.S. and EU policymakers should

BRUSSELS 00000881 004 OF 004


keep alert to the use of any present exigencies, be it the
food price crisis, climate change, or the economic slowdown,
as pretexts to promote protectionism.

Russia


12. (C) U/S Jeffery introduced the topic of Russia, saying
that the U.S. had recently re-invigorated its economic
dialogue with the Government of Russia (GOR). In the
dialogue discussions, which covered trade, Jackson-Vanik,
investment, and energy, Jeffery said the Russians were,
somewhat surprisingly, very focused on energy efficiency and
renewables. However, U/S Jeffery noted that during the
discussions the "elephants in the room" were the rule of law
and energy security. In the business-to-business portion of
the dialogue, Jeffery said, participants discussed the rise
of Russian consumer influence (linked to economic growth),
and internal "doing business" problems such as the business
environment, property rights, the sanctity of contracts, and
the corruption of the judicial system. Jeffery observed that
the U.S. and the EU need to "draw Russia in" to encourage
responsible behavior. Price noted the challenges in doing
so, because Russian economic policymakers routinely use
regulatory uncertainty to keep business and diplomatic
partners off balance.


13. (C) Verheugen noted he would travel to Russia on June 14
for the EU-Russia summit, and that his trip could provide a
good "test case" for assessing whether the GOR is acting
responsibly. Verheugen underlined Russia's strategic
importance for the EU, saying that as well as a crucial
source of energy, Russia is a lucrative market for EU
companies. However, despite the current run of healthy
profits, Verheugen said he foresees the day when the Russian
economy is largely state-controlled. His conclusion is that
the EU needs Russia more than in the past, but it needs
Russia to be a predictable partner, and a stable, long-term
relationship is not possible without an alignment of values.
Commissioner Kovacs made the point that the West should not
make the mistake of allowing the Russians to think they will
regain superpower status, or regain control over parts of its
former empire, whether in eastern Europe or in Central Asia.


14. (C) Mandelson surmised that Russia is increasingly
autocratic because it has large financial inflows from energy
and counts on the energy dependence of its neighbors. But,
Mandelson continued, these resources are finite, and the West
must reach out to those in Russia who recognize that. Russia
will need investment and high-tech to grow and to diversity
its economy, and it will naturally turn to Europe and the
U.S. Thus, Russia's future lies in reform. Mandelson said
he believes that Medvedev is an economic liberal and will
probably accept needed economic changes, as well as
improvements to the rule of law. Mandelson said he is
encouraged by some of Medvedev's recent appointments, notably
the chief WTO negotiator and the head of the Presidential
Administration, as well as some of his appointees at the
Justice Ministry. Mandelson said he believes economic
opening will help promote political opening, and that Russia
"will outgrow Putin."


15. (C) Verheugen said he thought what the Russians want
above all is respect. Price added that while we treat them
with respect, we should also test their receptivity to
political and economic opening and not give them the
impression that we are lowering our expectations on reform
and accountability. Mandelson said he believes the Russians
are apt to take advantage of the end of the U.S.
Administration to put pressure on the "near abroad". Deputy
Secretary Kimmitt countered by saying he thought a successor
U.S. administration would be even firmer on Russia. The group
agreed to consult informally upon Verheugen's return from
Moscow.

Murray
.