SCENESETTER FOR CODEL PETERSON VISIT TO MADRID

UNCLAS MADRID 000569

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: AMGT ASEC BEXP OREP AFIN SP FR PO
SUBJECT: SCENESETTER FOR CODEL PETERSON VISIT TO MADRID

REF: SECSTATE 053737


1. (SBU) Summary: Embassy Madrid warmly welcomes your
visit. The Government of Spain (GOS) shares your interest in
the development of renewable energy, including biofuels.
However, what once promised to be a booming industry with
plans for construction of 30 biodiesel and 20 ethanol plants,
has stalled as a result of delays in passing a mandatory
blending requirement and very high raw material prices.
Nearly all of the existing biofuel production capacity in
Spain sits idle, including the Abengoa cellulosic ethanol
plant in Salamanca that you will be visiting on Sunday, June

1. High-level GOS officials have raised concern over the
distortion in biodiesel production caused by the previously
existing "splash and dash" regime in the U.S. and should
react favorably to recent developments to remove this
provision. Within the Doha round context, Spain is aligned
with France in supporting protection for non-wine
agricultural products. Spain is the only large producer of
agriculture biotechnology in Europe, and continues to be its
strongest supporter within the EU. End Summary.

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Biofuels in Spain
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2. (U) The socialist government reelected in March has
remained consistently committed to the development of Spain's
renewable energy industry, including biofuels. In December
2006, the Spanish Ministry of Industry announced plans for a
new regulation making a two percent biofuels blend mandatory
in calendar year 2007. Although approved by the Spanish
Congress in June 2007, the new regulation establishing
mandatory blending does not take effect until 2009. The new
law includes a voluntary 1.9 percent blending in 2008, a
mandatory 3.4 percent blending in 2009, and a mandatory 5.83
percent blending in 2010.


3. (U) The uncertainty and delay in implementing the new
mandatory blending requirement caused significant delays in
development of the once-promising biofuel industry in Spain.
Combined with very high raw material prices, the absence of a
mandatory mixing requirement has caused all of the major
biodiesel and ethanol plants in Spain to halt production.
Although some small plants currently produce biodiesel with
used oil, and a small amount of ethanol is being distilled
from surplus wine, most of Spain's currently available
production capacity sits idle. Additionally, the significant
investment plans that various companies announced in recent
past, which could have led to as many as thirty biodiesel and
twenty ethanol plants in production by the end of calendar
year 2008, have either been postponed or terminated all
together.


4. (SBU) The issue of "splash and dash" has been raised by
high-level GOS officials with the USG. (Note: The EU alleged
that U.S. biodiesel exports to Europe benefited from domestic
U.S. subsidies under the splash and dash scheme. End Note)
The GOS' former Secretary of State for Tourism and Commerce,
Pedro Mejia, shared his concern over this issue with Senator
Grassley during CODEL Martinez's visit to Madrid in January
2008, and with several U.S. Senators during a meeting with a
Spanish renewable energy delegation on Capitol Hill in
February 2008. The recent decision by the House Ways and
Means Committee to end the provision will be received
favorably by the GOS. Embassy recommends that the CODEL be
prepared to discuss the issue, particularly the positive
aspects of this recent development.

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Doha Round:
Domestic Farm Supports and Agricultural Biotechnology
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5. (SBU) The Spanish Ministry of Environment, Rural
Development and Marine Affairs and the Spanish farmers they
represent stand clearly with France regarding the European
Commission's (EC) negotiating mandate in the Doha Round of
negotiations. They believe that the EC has already exceeded
the negotiating mandate agreed by all 27 Member States (MS).
They are particularly sensitive to further tariff reductions
that might be part of a comprehensive negotiating outcome,
believing that with the current Common Agricultural Policy
(CAP) reform, they have become too exposed to competition
from imported commodities. Many Spanish producers use
geographical indications to differentiate regional
production. They align themselves with the French on the
demand that protection for non-wine agricultural products be
part of the Doha Round outcome.


6. (SBU) Regarding CAP reform, the Spanish have fought hard
to protect domestic producers to the extent possible within
the CAP-reform parameters decided upon in Brussels. In all
cases, they have successfully insisted that the EC continue
to provide the same level of (or greater) monetary support,
even when they agreed to change the financial delivery
mechanism. At home, the Spanish negotiators have been very
vocal about their negotiating success, which may be one of
the contributing factors in the President effectively
promoting the former Minister of Agriculture to run a 'super
ministry' composed of the two former Ministries of
Agriculture and Environment. The new ministry is called the
Ministry of Environment, Rural Development and Marine
Affairs.


7. (SBU) Spain continues to be our strongest ally within the
EU on agriculture biotechnology and the only substantive
producer within the European Union. Spanish corn farmers
have exercised their option to grow biotechnology corn during
the last 12 years, and during the last two campaigns have
doubled planted acreage each year. In 2007, Spanish corn
farmers planted about 75,000 hectares. Spain is a
feed-deficit market, so it has a clear need to produce and
source as much raw material as possible.


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Political Update
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8. (SBU) The general elections in March 2008 were a hard
fought affair that saw President Zapatero's Socialist party
(PSOE) defeat Mariano Rajoy's Popular Party (PP). The PSOE,
which needed 176 seats in the 350-seat Congress to gain an
absolute majority, won 169 seats or about 44 percent of the
vote. The Popular Party won about 40 percent of the vote,
which translated into 155 seats. Smaller regional parties
from Catalonia, Galicia, and the Basque Region all received
enough votes to gain congressional representation but lost
seats to the two main political parties, the PSOE and PP.
Voter turnout nationwide was over 75 percent. The slowing
Spanish economy, the terrorist threat from both the Basque
terrorist group ETA and Islamic extremist groups, regional
autonomy, and immigration were all major topics during the
election. Foreign affairs did not play a major role in the
campaign, but the PSOE reminded voters that it removed
Spain's troops from an unpopular war in Iraq.


9. (SBU) Since winning reelection, Zapatero has named a new
government, created new ministries and combined others.
Zapatero's new cabinet notably has more female ministers (9)
than male (8),including Spain's first female Minister of
Defense, Carme Chacon. Two new ministries have been added:
The Ministry of Equality and the Ministry of Science and
Technology. The Ministry of Agriculture has taken on the
additional responsibility of Marine Affairs and has been
combined with the Ministry of the Environment. The GOS'
First Vice President for the Presidency, Second Vice
President for Economy and Finance, and Ministers of Foreign
Affairs and Interior remain the same.

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Economic Update
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10. (U) Spain has had one of Europe's fastest-growing
economies over the last decade. It has the world's eighth
largest economy and is the world's second largest tourism
destination and eighth auto manufacturer. Its GDP per capita
is expected to pass Italy's in 2010. The next year or two
will be more difficult. A housing boom that spurred growth
for several years ended abruptly in 2007. Construction has
slowed dramatically, and unemployment has risen to almost 10
percent. Inflation is higher than the EU average, which
hurts competitiveness.


11. (U) U.S. investment has long been important to the
Spanish economy (more so than bilateral trade),and U.S.
firms employ over 220,000 Spaniards. The growth of Spanish
multinationals and the strong Euro have led to a surge of
Spanish investment in the U.S. in the last few years. In
2007, Spain was the fourth largest foreign investor in the
U.S., with particular emphasis in banking, toll road
construction, and renewable energy. Spanish firms now own
wind farms in at least 14 U.S. states, as well as solar power
and biofuels plants.

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Diplomatic Cooperation and Security
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12. (SBU) U.S-Spain relations were seriously damaged by
President Zapatero's decision soon after his election in 2004
to abruptly withdraw Spanish forces from Iraq. However, over
the last several years, both countries have made a concerted
and successful effort to rebuild the relationship based on
strong mutual interests in counter-terrorism, fighting
narcotics trafficking and organized crime, and rapidly
expanding economic ties. The real bilateral story is found
in novel initiatives such as the HSPD-6 agreement we signed
last September to facilitate the sharing of information
between our national counter-terrorism authorities.
Following the March 11, 2004 train bombings, Spain remains a
target of Islamic extremists. Al-Qaeda leaders often call for
the recapture of the medieval "Al Andalus," and the recent
uncovering of a cell allegedly sympathetic to Al-Qaeda and
operating out of Barcelona has shown the Spanish that this
threat is not an idle one.


13. (SBU) Spain is no stranger to terrorism, having fought
the domestic Basque terrorist group ETA for almost 40 years.
Spanish political leaders are currently showing a united
face, as - for the first time in several years,
representatives of all political parties in the Spanish
Congress issued a joint statement on March 15 - announcing
that all would work together to defeat ETA. Interior
Minister Rubalcaba said in late March that "we are entering a
long cycle of violence" with ETA and, according to Spanish
media, the Spanish National Intelligence Center (CNI) has
informed the government that ETA has no plans to negotiate
for at least the next 18 months. The Basque terrorist group
has been active in recent months, detonating explosives on
several occasions, including one that resulted in the death
of a Spanish Civil Guard Officer on May 14. ETA also
assassinated a former PSOE city councilman on March 7 (two
days before national elections),and two Spanish Civil Guard
officers in France in December 2007. Spanish security forces
are concerned that ETA has established new bomb manufacturing
centers and techniques that will enable the organization to
launch more attacks.


14. (SBU) Narcotics trafficking is another area of common
concern and excellent cooperation. Spanish authorities
acknowledge that Andean cocaine is a serious problem here,
and Colombian trafficking organizations are active in Spain.
Money laundering is another serious issue. We are eager to
find ways to increase bilateral cooperation and to encourage
Spain to engage more aggressively with law enforcement
authorities in key Latin American countries. Spain has
recently taken steps in this direction. Within the last two
months, the Director General of Spain's Police and Civil
Guard traveled to Colombia to sign a cooperation agreement to
fight drug trafficking and its related crimes through
increased personnel and information exchange.


15. (SBU) Spain, second only to the U.S. in terms of
investment, is actively engaged in Latin America. In
addition to cultural and historical ties, Spain shares our
interest a strong democratic and free market institutions in
the region. Regarding Cuba, we share with Spain the
objective of a peaceful transition to democracy but differ
markedly on how to achieve this end. Spain's socialist
government has opted for engagement, claiming it can
encourage regime elements who want change. We take every
opportunity to remind the Spanish that the Cuban regime is
only interested in survival and that the Cuban dissidents
need and deserve the active and visible support of
democracies everywhere.


16. (SBU) Spanish military cooperation matters. The bases of
Rota and Moron are strategic hubs, midway between the U.S.
and Afghanistan and Iraq. U.S. planes and ships account for
around 5,000 flights and 250 port calls a year in Spain. The
Spanish military is pro-U.S. and pro-NATO. We need to keep
this relationship strong. Spain has nearly 800 personnel in
Afghanistan and runs a provincial reconstruction team in
Badghis province. Spain has contributed some 150 million
Euros in Afghan reconstruction funds. Planning is underway
to allow the Spanish to train and equip an Afghan Army
company, which we hope will be a prelude to the training and
equipment of a full battalion. Spain has nearly 1,100 troops
with UNIFIL in Lebanon and about 700 in Kosovo. On Iraq,
Spain has contributed $22 million to the Basrah Children's
Hospital and a further $28 million in development funding for
Iraq. Spain's total commitment to the Iraq Compact was USD
225 million. The Spanish Foreign Ministry says that Spain
has disbursed all of its pledge except for its concessional
loans, which are pending completion of project proposals. It
also has provided through UNHCR over 800,000 euros for
refugee and displaced persons relief in Jordan and Syria.
Spain is an active participant in EU-Iraq negotiations on an
economic cooperation agreement that would provide additional
funding for training and development activities.
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Security Assessment
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17. (U) In general, Spain is safe. However, Madrid,
Barcelona and other large cities in Spain attract a large
number of criminals and pickpockets and frequent incidents of
crime of opportunity against the unwary do occur. It is best
to carry only essential items including a photocopy of your
passport's photo page. Visitors can protect themselves
against crime by being street-smart, alert and aware of their
surroundings. Travelers are encouraged to review the most
recent Worldwide Caution issued by the Department of State.
As the Department of State continues to develop information
on any potential security threats to Americans overseas, it
shares credible threat information through its Consular
Information Program documents, available on the Internet at
http://travel/state.gov. Additional information regarding
safety and security in Spain is available on the U.S.
Department of State's website (www.embusa.es).
Aguirre